The US dollar is holding steady despite a busy week for central banks. Cyclical currencies are performing well, and global stock markets are rising thanks to positive trade news. The US has signed trade agreements with Malaysia and Cambodia. It also set up reciprocal trade frameworks with Thailand and Vietnam. Efforts are being made to mend trade relations with Brazil. Top negotiators from the US and China have outlined a draft for a trade agreement ahead of the upcoming meeting between President Donald Trump and President Xi Jinping.

Central Bank Activities and Market Impact

Central bank actions could create some market fluctuations, but they are not likely to disturb the USD, which has stayed within its range since June. Over the next three to six months, we expect a slight decline in the USD due to lower expectations for US interest rates and trade policy changes. Treasury Secretary Scott Bessent revealed the five finalists for the next Federal Reserve chair: Kevin Hassett, Kevin Warsh, Fed Governor Christopher Waller, Fed Governor Michelle Bowman, and Rick Reider. All these candidates have favored a looser monetary policy. President Trump plans to announce his choice by the end of the year. Global stock markets are climbing due to positive trade outcomes. Notably, the S&P 500 has risen over 4% in just the last two weeks. This upbeat mood benefits cyclical currencies, presenting short-term opportunities in call options for currencies like the Australian dollar or commodity-linked futures. Meanwhile, the dollar remains stable within its range since June 2025. We predict that the US dollar will weaken over the next three to six months, influenced by expectations of a more dovish Federal Reserve. This outlook is supported by the potential Fed chair candidates, all advocating for looser monetary policy. Traders might start to prepare for this expected decline by buying put options on USD-tracking ETFs expiring in early 2026.

Upcoming Fed Chair Announcement

The announcement of the new Fed chair by year-end is a major event, likely to increase volatility in currency options as the date approaches. We witnessed a similar situation in late 2023 when the market anticipated rate cuts, resulting in a sharp but temporary drop in the dollar. This history suggests that confirming a dovish chair could further accelerate the dollar’s decline. This week, central bank meetings are expected to create some market fluctuations but are unlikely to push the dollar out of its established range. Currently, the CBOE Volatility Index (VIX) has dropped to a yearly low of 13.5, showing market complacency that could be easily shaken. This scenario may favor short-term, range-bound strategies like iron condors on major currency pairs until a clearer trend develops. Create your live VT Markets account and start trading now.

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