The US Dollar remains strong after comments from Fed Chair Powell lowered expectations for an interest rate cut. Markets now see only a 66% chance of a rate cut in December, down from over 90%. A 25 basis point cut is still expected next month due to pressure on employment and lower inflation risks. After Powell’s remarks, expectations for US rates increased, keeping the USD steady against other major currencies. The chance of a rate cut at the December 10 meeting is currently pegged at 66%. With reduced expectations for rate cuts, the rally in risk assets has slowed. The Fed’s tight policy could worsen employment issues, and inflation risks seem to be under control.

Government Shutdown Continues

The US government shutdown continues with no resolution in sight, as both parties remain at a standstill. Senate meetings are set for November 3. Today’s discussions include Dallas Fed President Lorie Logan and Fed Presidents Beth Hammack and Raphael Bostic. Upcoming private-sector data will shed light on employment and inflation, but it’s unlikely that the USD will move out of its current range since June. Today, October 31, 2025, the US Dollar is holding steady after the Federal Reserve’s comments decreased the likelihood of an immediate interest rate cut. The chances of a 25 basis point cut during the December 10 meeting have fallen to around 66%, creating a significant divide in the market. This disconnect between market expectations and economic reality could present opportunities. We still anticipate a rate cut in December because the Fed’s tight policy is beginning to affect the job market and inflation threats are fading. This view is reinforced by the Bureau of Labor Statistics report, which indicated slower job growth of just 98,000 in September, falling short of expectations. Recent Consumer Price Index (CPI) data shows inflation has moderated to an annualized rate of 2.7%, much lower than previous cycles.

Trading Strategies and Market Volatility

Traders should explore options strategies that could profit if the market adjusts to our forecast of an upcoming rate cut. This might include buying December call options on Secured Overnight Financing Rate (SOFR) futures, which would become more valuable if lower rates are anticipated. Currently, the cost of these options is high, but they could offer significant returns if a cut looks more likely. The ongoing US government shutdown adds complexity and may further pressure risk assets in the short term. A similar scenario occurred during the 2018-2019 shutdown when the VIX index, which measures expected market volatility, surged by over 80% in just a few weeks. Traders might consider VIX call options to hedge against or bet on increased market volatility before the November 3 deadline for senators. In foreign exchange, if our prediction holds true and the Fed signals a cut, the recent strength of the dollar may reverse. This suggests that positioning for a weaker dollar against major currencies is a smart move. Buying put options on the U.S. Dollar Index (DXY) or call options on pairs like EUR/USD for December expiration would align with this strategy. All eyes are on next week’s employment data, including the JOLTS and ADP reports, to verify our suspicions about a weakening labor market. Comments from Fed Presidents Logan and Hammack today may also lead to short-term market adjustments. Any data revealing a sharper-than-expected economic slowdown could speed up the market’s anticipation of a December rate cut, validating these trading positions. Create your live VT Markets account and start trading now.

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