The US Dollar Index fell to around 97.00, its lowest point in four months. It dropped by 1.00% against the Japanese Yen, making it the weakest currency. Meanwhile, the Euro and the British Pound had minor changes against the USD, with decreases of -0.29% and -0.12%, respectively. **Market Changes and Trade Relations** Market trends are affected by strained relations between Washington and its trading partners. A recent dispute with the European Union over Greenland has added to the tension. Additionally, the Danish pension fund AkademikerPension is set to pull out of a $100 million position in US Treasuries, citing worries about US government financial stability—though this isn’t directly linked to the EU-US situation. In the US, the Federal Reserve is expected to announce its monetary policy soon, likely keeping interest rates stable at 3.50%-3.75%. The US Dollar is still the most traded currency worldwide and plays a critical role in foreign exchange. It became the world’s reserve currency after World War II. The Federal Reserve greatly influences the USD’s value mainly through interest rate changes. When the Fed engages in quantitative easing, it increases the money supply, usually making the USD weaker. On the other hand, quantitative tightening typically strengthens the dollar. With the US Dollar Index hitting a four-month low of 97.00, we may continue to see weakness in the upcoming weeks. This decline is driven by worries about US foreign policy and a growing national debt, leading foreign investors to sell US assets. Derivative traders should brace for an extended period of dollar selling. **Federal Reserve Interest Rate Decisions** The Federal Reserve is expected to keep interest rates unchanged this Wednesday, providing no immediate help for the dollar. The inflation report from December 2025 showed a stubborn rate of 2.9%, making it difficult for the Fed to cut rates to encourage growth. This situation creates uncertainty, favoring currencies with more straightforward monetary policies. Concerns about US government finances are increasing, as the national debt has surpassed $37 trillion, which is over 128% of GDP. The Danish pension fund’s decision to sell US Treasuries is part of a broader trend we’re seeing in 2025, where central banks are diversifying their reserves. This gradual selling pressure may cap any potential rallies in the dollar. Volatility is on the rise, offering opportunities for options traders. After a quieter 2025, the VIX index—a key measure of market fear—jumped to 18 last week from an average of 14. Traders might consider buying put options on the dollar or call options on safe-haven currencies like the Japanese Yen and Swiss Franc. The Japanese Yen’s 1.00% rise against the dollar reflects typical safe-haven behavior seen during geopolitical stress in 2024. The USD/JPY pair is currently vulnerable and may quickly drop. Strategies like shorting USD/JPY futures or buying call options on the yen could be profitable. We should also watch today’s Durable Goods Orders data for November 2025. A weaker number could confirm a slowing US economy, potentially driving the DXY below the critical 97.00 level. Create your live VT Markets account and start trading now.

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