US-EU tensions have eased after President Trump reached an agreement with NATO related to Greenland. This deal led to the suspension of tariff threats against eight European countries. The US Dollar Index (DXY) traded around 98.40, falling despite positive US economic data, which reduced the chance of a rate cut in the next Federal Reserve meeting. The US Dollar declined against major currencies, dropping 1.20% against the Australian Dollar. AUD/USD was about 0.6840, while EUR/USD and USD/JPY were at 1.1740 and 158.30, respectively. Gold hit a record high, trading above $4,920, reflecting its appeal as a safe haven amidst decreasing geopolitical tensions.

Upcoming Economic Releases

Key upcoming economic releases include the Consumer Price Index from the Reserve Bank of New Zealand and Japan’s National CPI. The Bank of Japan will also announce its monetary policy decision, while preliminary PMI figures for Germany, the Eurozone, the UK, and the US will be published. Gold is significant for its history as a store of value and safe-haven investment. Central banks, especially in developing economies, have bought large amounts, with purchases peaking in 2022. Gold prices are affected by geopolitical events, interest rates, and movements in the US Dollar, due to their inverse relationships. A year ago, risk appetite improved as US-EU tensions over Greenland eased, relieving some pressures on the markets. This came after concerns about tariff threats affecting European assets. The resolution set a new tone for foreign exchange markets as we moved deeper into 2025. The US Dollar Index (DXY) was falling then, and this trend continued throughout 2025 as inflation dropped faster than expected. By the fourth quarter of 2025, the US Consumer Price Index (CPI) fell to 2.8%, leading the Federal Reserve to cut rates twice, putting more pressure on the dollar. This creates a good opportunity for shorting the dollar or buying put options on dollar-centric pairs in the coming weeks.

Trends in Currency and Precious Metals

The dollar’s weakness has been beneficial for the Euro, a trend that persists. The European Central Bank has been slower in cutting rates compared to the Fed, creating an advantageous interest rate difference for the EUR/USD pair. Traders should expect this policy difference to continue, suggesting further gains for the Euro against the dollar. Gold’s rise to over $4,920 last year, even with improved risk sentiment, indicated strong underlying demand. Massive central bank purchases contributed to this, with the World Gold Council reporting an addition of 1,050 tonnes to reserves in 2025, continuing a prior trend. As long as central banks keep reducing reliance on the dollar, buying call options on gold is a smart hedge against market turmoil. At this time last year, we noted the Bank of Japan’s gradual move toward policy normalization starting in mid-2025. This has begun to reverse the yen carry trade. We expect this to accelerate, putting downward pressure on pairs like USD/JPY and AUD/JPY. Traders should be cautious about being long on these pairs and consider strategies that benefit from a strengthening yen. Given the changing monetary policies, with the Fed easing and the BoJ tightening, we expect increased currency volatility. Implied volatility on major currency options remains relatively low, creating a chance to buy straddles or strangles on pairs like EUR/USD and USD/JPY. This strategy would allow traders to profit from significant price movements in either direction over the next few months. Create your live VT Markets account and start trading now.

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