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Following Fed warnings on persistent inflation and oil uncertainty, the US Dollar Index surged late, reaching highs

The US Dollar Index moved to session highs after the Federal Reserve kept interest rates unchanged and Jerome Powell said inflation progress has slowed. DXY was nearly flat earlier, then rose sharply after the rate decision and press conference. The FOMC voted 11-1 to hold the federal funds rate at 3.50% to 3.75%, with Stephen Miran favouring a 25 basis point cut. In the SEP, the 2026 PCE inflation forecast rose to 2.7% from 2.5% in December on both headline and core measures, while the 2026 GDP growth estimate increased to 2.4%.

Fed Signals And Inflation Outlook

The dot plot median still points to one cut this year. Seven members now expect no cuts in 2026, up from six in December, and the longer-run neutral rate estimate rose to 3.1% from 3.0%. Powell said goods inflation linked to tariffs remains a barrier to faster disinflation. He said it is too soon to judge the scope and duration of oil-price effects linked to the Iran conflict, and that energy-driven inflation cannot be set aside until tariff-related pressures ease. On a 15-minute chart, DXY traded at 100.13 and was above the 200-period EMA near 99.70. Support levels were cited at 100.00, 99.80 and 99.70, with resistance near 100.20 and a further target around 100.40. The Federal Reserve’s signal that rates will remain elevated means we must adjust our strategies for the coming weeks. The clear takeaway is that the US dollar is poised for more strength, and expectations for interest rate cuts this year are rapidly diminishing. This environment favors derivative plays that profit from a stronger dollar and sustained or rising volatility. With the Dollar Index breaking decisively above the 100.00 level, we should consider buying near-term call options on the DXY or related currency ETFs. The technical momentum is strong, and fundamental support from the Fed reinforces this bullish view for the dollar against other major currencies. Selling puts on currency pairs like the EUR/USD also appears attractive as the interest rate gap between the US and Europe is set to remain wide.

Positioning For Rates Volatility

The market is now re-evaluating the Fed’s rate path, with the lone dissent in favor of a cut looking increasingly isolated. This opens opportunities in interest rate derivatives, where we can position for fewer cuts than were priced in just weeks ago. Selling futures contracts tied to the Fed funds rate or buying options that pay off if rates stay at current levels through the summer are now viable strategies. This hawkish stance from the Fed is not happening in a vacuum; it’s a direct response to recent data. The latest Consumer Price Index (CPI) report for February 2026 showed inflation at 3.4% year-over-year, stubbornly high and reversing some of the progress we saw in late 2025. This number gives credibility to the Fed’s updated inflation forecast and its cautious tone on policy. Furthermore, the labor market remains tight, with the most recent jobs report showing a robust addition of over 250,000 payrolls, giving the Fed little reason to cut rates and risk stoking demand further. At the same time, the conflict in Iran has kept Brent crude oil prices hovering near $95 a barrel, a constant source of inflationary pressure that the Fed can no longer dismiss as temporary. For equity markets, this policy shift suggests increased choppiness and a potential headwind for growth-sensitive sectors. We should consider buying protective put options on major indices like the S&P 500 to hedge against downside risk in the coming weeks. A sustained strong dollar can also negatively impact earnings for multinational corporations, making index-level protection a prudent move. Create your live VT Markets account and start trading now.

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Powell explained holding rates steady, attributing higher growth forecasts to productivity, while answering journalists’ questions afterward

The Federal Reserve kept the Fed Funds Target Range unchanged at 3.50%–3.75% after its March meeting, matching market expectations. The decision passed 11 to 1, with one member backing a 25 basis point cut. The FOMC said economic activity has been expanding at a solid pace, while job gains have remained low and the unemployment rate has been little changed. It also said inflation remains somewhat elevated and that uncertainty about the outlook is elevated, including uncertainty linked to the Middle East.

Powell Signals Patience

Jerome Powell said the economy is expanding, consumer spending is resilient and housing activity is weak. He said labour demand has softened and the labour market is not a source of inflation pressure, and he cited estimates for February PCE inflation of 2.8% and core PCE of 3.0%. Powell said near-term inflation expectations have risen while longer-term expectations remain consistent with the 2% goal. He said higher energy prices could push up inflation in the near term, with unknown scope and duration, and policy decisions will be taken meeting by meeting. The SEP showed a median policy-rate projection of 3.4% at end-2026 and 3.1% at end-2027 and end-2028, with a longer-run rate of 3.1%. It projected 2026 unemployment at 4.4%, 2026 PCE and core PCE inflation at 2.7%, 2026 GDP growth at 2.4%, and longer-run growth at 2.0%. Powell said growth projections were revised up due to stronger productivity. He also said rate cuts would not follow if inflation progress stalls.

Trading Implications

The Federal Reserve is signaling that interest rates will remain high for longer than we previously anticipated, with a strong possibility of only one small rate cut in 2026. This means we must adjust our positions to favor a stronger U.S. dollar and higher bond yields in the coming weeks. The market’s hawkish repricing is the new baseline we should be trading against. Given this outlook, we should consider strategies that benefit from a robust dollar and sustained high interest rates. Long positions in U.S. dollar futures or call options on the DXY index are direct ways to express this view. At the same time, shorting Treasury futures is a way to position for yields remaining elevated or climbing further. The Fed’s caution is understandable given that core PCE inflation is still running at an estimated 3.0%, well above their target. This situation is reminiscent of the stubborn inflation reports we saw throughout 2025, which consistently pushed back expectations for any policy pivot. Betting against inflation coming down quickly has been the correct trade, and it appears to remain so. The upward revision to GDP growth, which is attributed to stronger productivity, is a crucial detail. We saw similar productivity gains through the second half of 2025, when nonfarm business productivity rose at an annualized rate of over 3%. This gives the Fed cover to keep policy restrictive without immediately fearing a major economic downturn. For equity derivatives, this environment is a headwind for interest-rate-sensitive growth stocks. We should consider buying protective put options on indices like the Nasdaq 100 to hedge against potential downside. Sectors like energy could continue to outperform due to both geopolitical tensions and resilient economic activity. Uncertainty from the conflict in the Middle East will continue to inject volatility into the market, particularly in energy prices. The CBOE Volatility Index (VIX) has already climbed above 20, reflecting increased investor anxiety. Using VIX call options or other long-volatility strategies can serve as an effective portfolio hedge against sudden market shocks. The options market is now reflecting this new reality, with implied volatility on short-term interest rate futures remaining high. This signals that the path of monetary policy is still uncertain, but the bias has clearly shifted away from imminent rate cuts. Therefore, we should reduce exposure to trades that rely on a dovish Federal Reserve in the near term. Create your live VT Markets account and start trading now.

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After the Fed’s steady rates and limited 2026 cuts, NZD/USD falls 0.71% to 0.5814 amid NZ GDP focus

NZD/USD fell towards 0.5840 and traded near 0.5814, down 0.71%, after the US Federal Reserve kept interest rates unchanged. The Fed also projected one rate cut in 2026 and another in 2027, supporting the US Dollar. The US Dollar Index (DXY) rose and reached 100. US February Producer Price Index (PPI) came in at 3.9%, up from 3.5% and above expectations.

Fed Outlook And New Zealand Data

The Fed’s Summary of Economic Projections put PCE inflation at 2.7%, up from 2.4% in December. New Zealand Q4 GDP is due early Thursday, with forecasts of 0.4% QoQ from 1.1% and 1.7% YoY from 1.3%. On the 4-hour chart, price sat around 0.5840 and remained below the 20-period and 100-period SMAs. The 20-period SMA was near 0.5835 and the 100-period SMA near 0.5911, while RSI was 45. Resistance was noted at 0.5856, with a further level near 0.5910. Support levels were cited at 0.5832 and 0.5813. We remember looking at this situation back in March 2025, when the Federal Reserve’s hawkish stance pushed NZD/USD down toward the 0.58 level. The concern then was persistent US inflation, with the Producer Price Index surprising to the upside. That period of dollar strength set the tone for much of last year. The Fed’s projection for only one rate cut proved largely accurate through 2025, as inflation remained stubborn. Recent data from February 2026 shows core Consumer Price Index (CPI) is still hovering around 2.8%, well above the Fed’s target. This has kept US interest rates relatively high compared to market hopes from a year ago.

Policy Divergence And Trade Ideas

On the other side, New Zealand’s economy did see the slowdown that was anticipated, with GDP growth for 2025 coming in lower than forecast and narrowly avoiding a deep recession. The Reserve Bank of New Zealand has been forced to hold its official cash rate steady at 5.5% to combat its own domestic inflation. This policy divergence is now the central theme for the currency pair. Currently, with NZD/USD trading around 0.6175, the dynamic has shifted significantly from the lows we saw a year ago. The market is now pricing in at least two Fed rate cuts by the end of this year, while the RBNZ is expected to hold firm until at least the fourth quarter. This interest rate differential is providing underlying support for the Kiwi dollar. For traders, this suggests that volatility in the pair could increase as central bank paths diverge. We should consider buying NZD/USD call options to profit from potential upside while capping our risk. This strategy works well if we expect a steady grind higher rather than a sharp, sudden breakout. Alternatively, a simpler approach is to use futures to take a long NZD/USD position, betting that the higher New Zealand interest rate will continue to attract capital. This view is supported by the historical tendency for carry trades to perform well when one central bank is clearly starting an easing cycle while another remains on hold. We would place stops below the 0.6050 level to manage risk against any surprise hawkishness from the Fed. Create your live VT Markets account and start trading now.

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Argentina’s fourth-quarter unemployment rose to 7.5%, increasing from the previous 6.6% quarter-on-quarter figure

Argentina’s unemployment rate was 7.5% in the fourth quarter, up from 6.6% in the previous quarter. This is an increase of 0.9 percentage points quarter on quarter. The Q4 2025 unemployment number, jumping to 7.5% from 6.6%, is a clear signal of economic weakness. This data suggests the labor market is struggling more than anticipated, likely leading to reduced consumer spending. We see this as a pivot point, challenging the modest optimism we held at the end of last year. Given this weakness, we should anticipate further pressure on the Argentine Peso. Derivative strategies should favor long USD/ARS positions, perhaps using forward contracts or call options on the currency pair. The central bank’s efforts to drain liquidity, which we saw them attempt again in February 2026, might not be enough to counter this negative sentiment. For the Merval index, this news warrants a bearish stance. We should consider buying put options on the index or on major financial and consumer-focused stocks that will be hit hardest. Looking back at similar situations, like the economic turmoil we observed in 2023-2024, rising unemployment often preceded sharp equity market corrections. This report will almost certainly increase market volatility. Implied volatility on Merval options, which was already trending up at around 65% last week, is likely to spike higher. Establishing long volatility positions, such as straddles on the index, could be profitable regardless of the market’s exact direction in the immediate term. The central bank is now in a difficult position, caught between fighting inflation and stimulating a weakening job market. With monthly inflation still stubbornly high, reported at 6.1% for February 2026, they have little room to cut interest rates to boost employment. This policy gridlock only adds to the uncertainty, reinforcing our bearish outlook on Argentine assets.

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Following strong US PPI inflation, GBP/USD dropped 0.21% to 1.3320 as Fed optimism eased

GBP/USD fell 0.21% on Wednesday after a higher US inflation reading. The move followed the release of US Producer Price Index (PPI) data. After the report, markets reduced expectations for Federal Reserve policy easing. At the time of writing, GBP/USD was trading near 1.3320.

Dollar Strength Driven By Hot Inflation

We are seeing a familiar pattern where strong US economic data strengthens the dollar against the pound. The latest US inflation numbers for February 2026 came in hotter than expected at 2.8%, causing GBP/USD to fall back towards the 1.2850 level. This is pushing the Federal Reserve to signal it will keep interest rates higher for longer. This situation creates a clear policy divergence that traders must watch. While the Fed is talking tough, the Bank of England is facing weaker UK growth data, increasing the chances of a rate cut this summer. As of this week, interest rate futures markets are now pricing in less than a 25% chance of a Fed rate cut before July, a sharp drop from last month. Looking back at the 2024-2025 period, we learned that betting against a hawkish Federal Reserve during times of stubborn inflation was a mistake. We saw several instances where markets priced in cuts too early, only for the dollar to rally strongly when US data remained robust. That history suggests we should be cautious about expecting any significant pound strength in the near term. For the coming weeks, we believe traders should consider positions that benefit from a stronger dollar or a weaker pound. Buying GBP/USD put options could be a prudent strategy to hedge against or profit from a further slide in the exchange rate. This allows for a defined-risk approach to a potentially volatile market.

Volatility Rising As Policy Diverges

Implied volatility for the pound has started to rise, with the CBOE’s British Pound Volatility Index climbing over the past two weeks. Historically, when policy paths between the US and UK diverge this sharply, it leads to sustained periods of higher volatility. This environment makes option strategies particularly relevant for managing risk. Create your live VT Markets account and start trading now.

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Gold falls over 2.20% to $4,878 after US inflation rises, Middle East tensions increase, boosting dollar

Gold (XAU/USD) fell more than 2.20% on Wednesday, trading at $4,878 after a daily high of $5,016. It dropped below the 50-day Simple Moving Average at $4,961 as US yields rose and inflation data reduced expectations of rate cuts. The US Dollar Index rose 0.29% to 99.84, alongside higher oil prices. Israel reported an attack on Iran’s Pars gas field facilities, and Iran threatened strikes on infrastructure, driving WTI up 0.72% to $96.64 per barrel.

Inflation Data Pressures Gold

US Producer Price Index data for February came in hotter than expected, with PPI at 3.4% year on year versus 2.9% in January. Core PPI rose from 3.5% to 3.9% year on year, and swaps markets priced 18.5 basis points of easing towards the end of 2026. Factory Orders in January rose 0.1% month on month after a revised -0.4% fall previously. Markets are focused on the Federal Reserve decision, updated forecasts, the dot-plot, and Jerome Powell’s press conference. Technically, gold’s break below $4,900 raises focus on $4,800, while resistance levels include $4,961, $5,000, $5,100, and $5,238. The Relative Strength Index has moved deeper into oversold territory. Central banks added 1,136 tonnes of gold worth around $70 billion in 2022.

Trading Positioning Ahead Of The Fed

The recent break below the 50-day moving average and the $4,900 level for gold is a significant bearish signal for us. This move is driven by a stronger US Dollar, which is gaining ground due to hotter-than-expected inflation and new geopolitical tensions. Derivative traders should view this as a potential trend reversal, at least in the short term. The Producer Price Index coming in at 3.4% has forced the market to reconsider Federal Reserve rate cuts this year. We saw a similar dynamic back in early 2024, when a series of sticky inflation reports delayed the market’s expectations for easing. This “higher for longer” rate environment increases the appeal of the dollar and weighs heavily on non-yielding assets like gold. Adding to inflation fears, the conflict in the Middle East has pushed WTI crude oil above $96 a barrel. Historically, such geopolitical shocks can have a rapid and dramatic effect on energy prices; we saw oil surge over 30% in just a few weeks after the start of the Ukraine conflict in 2022. This energy-driven inflation will only make the Fed’s job harder and support a hawkish stance. Given the uncertainty ahead of the Fed’s announcement, we should prepare for increased volatility. We can look at buying put options on gold futures or related ETFs to capitalize on a potential move down toward the $4,800 support level. The CBOE Volatility Index (VIX), which averaged around 13.7 in 2023, will likely see a significant spike, making long volatility strategies attractive. All eyes are now on the Federal Reserve’s upcoming “dot-plot” for interest rate projections. If Fed officials signal fewer or no rate cuts for 2026, it would validate the market’s current fears and likely trigger another wave of selling in gold. Therefore, maintaining a cautious or outright bearish stance on the yellow metal seems prudent in the coming weeks. Create your live VT Markets account and start trading now.

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Ahead of the Fed decision, DXY hovered near 100 after hotter PPI lifted it about 0.3%

The Dollar Index (DXY) rose about 0.3% on Wednesday to around 99.85, after rebounding from early-March lows near 97.00. It moved back above 100.00 last week, then traded in a narrow range just below that level. US Producer Price Index data showed wholesale prices rose 0.7% month on month in February versus a 0.3% forecast. The year-on-year rate was 3.4% versus 2.9% expected, while core PPI was 3.9% versus 3.7% expected.

Fed Policy And Oil Shock

The data came before the latest escalation in the Iran conflict, while West Texas Intermediate traded near $98 per barrel. Markets expected the Federal Reserve to hold rates at 3.50% to 3.75% on Wednesday. Markets priced one rate cut for 2026, with the first move not expected until September at the earliest. The Summary of Economic Projections, dot plot, and Jerome Powell’s press conference were in focus, ahead of his planned departure in May. On the daily chart, DXY traded at 99.83, above the 50-day EMA near 98.50 and near the 200-day EMA around 99.05. Support was cited at 99.00, then 98.50 and 98.00, while resistance was at 100.00 and 100.50. The stronger-than-expected producer price data suggests inflation is not under control, especially since it does not yet reflect the recent surge in oil prices to nearly $98 a barrel. This situation almost guarantees the Federal Reserve will maintain its hawkish stance and keep interest rates higher for longer. Consequently, we should be preparing for continued US dollar strength in the coming weeks. This marks a significant shift from late 2025, when we were anticipating several rate cuts this year. Now, futures markets are barely pricing in a single cut for 2026, with the CME FedWatch Tool showing just a 52% chance of a move by September. This repricing away from rate cuts provides a strong tailwind for the dollar.

Trading Setup And Risk

Given the dollar index’s firm position above its key 50-day and 200-day moving averages, traders should consider buying call options or long futures contracts on the DXY. The immediate target is the psychological 100.00 level, which has acted as a ceiling. A decisive break above the recent high of 100.50 could trigger a new, more aggressive rally. Volatility will likely spike around Chairman Powell’s press conference later today, as this is one of his final appearances before his term ends in May. To capitalize on a potential sharp move in either direction, using straddles on major currency pairs like the EUR/USD could be a prudent strategy. This allows us to profit from a large price swing without betting on the specific outcome of the Fed meeting. We must also watch for signs of economic weakness, as recent data showed initial jobless claims rising to a four-month high of 230,000. A sharp economic slowdown could force the Fed’s hand, undermining the dollar’s strength. A break below the 99.00 support area would be an initial warning sign, and a move under 98.50 would challenge the current bullish outlook. Create your live VT Markets account and start trading now.

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Stagflation worries mounted after hotter PPI and an FOMC decision sent the Dow down nearly 1%, 450 points

US shares fell on Wednesday as hotter Producer Price Index (PPI) data arrived on the same day as the Federal Open Market Committee (FOMC) decision. The Dow dropped nearly 1% (over 450 points), the S&P 500 fell about 0.7%, and the Nasdaq Composite lost roughly 0.5%. The Bureau of Labor Statistics said PPI for final demand rose 0.7% month-on-month in February versus 0.3% expected, after 0.5% in January. Headline PPI rose to 3.4% year-on-year versus 2.9% forecast, while core PPI increased 0.5% versus 0.3% expected and the annual core rate climbed to 3.9% from 3.5%.

Fed Decision And Market Pricing

The Fed was expected to hold rates, with focus on the SEP and dot plot. In December, the median dot pointed to one 25-basis-point cut in 2026, while CME FedWatch showed only one cut priced in by year-end, most likely in December, with near-zero odds before September. Oil rose about 3% as WTI moved above $95 per barrel, up roughly 50% this year, and gold slipped below $5,000 per ounce. The US issued a 60-day Jones Act waiver covering oil, natural gas, fertiliser and coal. Caterpillar rose about 1% and Goldman Sachs gained about 1%, while Amgen, Sherwin-Williams and Procter & Gamble each fell around 2%. Nvidia edged up after a report that China approved sales of its H200 chips, alongside talk of a $1 trillion revenue opportunity through 2027. Looking back at the high inflation prints from February 2025, we can see they set the tone for the past year. That producer price surge, combined with the conflict in Iran, kept the Federal Reserve on hold for all of 2025 and into this first quarter. With the latest February 2026 Consumer Price Index still elevated at 3.1%, the market’s expectation for rate cuts remains pushed out.

Volatility And Trading Approaches

This sustained uncertainty means we should anticipate volatility to remain high for the next few weeks. The CBOE Volatility Index (VIX) has been averaging above 20, a significant shift from the calmer periods before last year’s energy shock. We can use this environment by considering long volatility strategies on the S&P 500, such as buying straddles ahead of upcoming inflation data releases. The geopolitical situation continues to support crude oil prices, with WTI futures for May delivery currently trading near $98 per barrel. Since the conflict escalated last year, we have seen prices consistently find support above the $90 mark. Therefore, buying call options on energy sector ETFs like the XLE offers a defined-risk way to profit from any further supply disruptions. The performance gap between sectors we saw emerging in early 2025 has only widened since. Energy and industrial stocks continue to outperform as they pass on higher costs, while consumer-facing companies struggle with squeezed margins. A pairs trade, going long energy futures while simultaneously buying puts on a consumer staples ETF like XLP, could hedge against broad market downturns. Given the Fed’s rigid stance, derivatives tied to interest rates offer a direct play on monetary policy shifts. We see significant activity in options on Treasury bond ETFs, with traders positioning for the Fed to remain on hold longer than previously expected. Using Secured Overnight Financing Rate (SOFR) futures can also provide a hedge or speculative position on the short-end of the curve. Create your live VT Markets account and start trading now.

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ING’s Frantisek Taborsky says CEE currencies rose on risk appetite, despite energy-driven inflation and waning hike bets

Central and Eastern European currencies have strengthened as global risk appetite improved over the last two days, even while oil and gas prices stayed high. Higher energy prices still point to extra inflation in the region. Since the start of the US–Iran conflict, markets have reduced the number of policy rate rises priced in across the region from about 2–3 to 1–2. Trading conditions have steadied and liquidity has improved.

Market Risks And Near Term Rate Outlook

Further tension could still return and cause another sell-off if energy prices jump again, as seen last week. For now, market pricing suggests rate rises are less likely in the near term. The Czech National Bank meeting is due tomorrow and the National Bank of Hungary meeting is due next week. Both meetings are expected to push back against expectations of rate increases. The article was produced using an artificial intelligence tool and checked by an editor. Global risk sentiment has improved, which is helping currencies in Central and Eastern Europe. We are seeing a pattern similar to the one following the US-Iran conflict in 2025, where bets on central bank rate hikes quickly faded. For traders, this suggests that positioning for further currency strength is the path of least resistance for now.

Rates Volatility And Trading Conditions

The market is scaling back its expectations for interest rate hikes, a move supported by recent data. For instance, Czech inflation cooled to 2.8% in February, bringing it much closer to the central bank’s target. This gives the Czech National Bank and its regional peers room to hold rates steady, reinforcing the view that hikes are off the table. With the VIX, a key measure of market fear, now trading at a calm 14.5, implied volatility in CEE currency options has decreased. This environment is favorable for selling options to collect premium, as long as risk is managed carefully. Traders could consider strategies that benefit from stable exchange rates and low interest rate volatility in the near term. The positive sentiment is underpinned by a recovering Eurozone, with the latest ZEW Economic Sentiment index hitting a six-month high of 15.2. This contrasts sharply with the aggressive rate hikes we saw in 2022, when central banks were forced to act against surging energy prices. Right now, the market believes the worst of the inflation threat has passed, allowing this relief rally to continue. Create your live VT Markets account and start trading now.

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Before the Federal Reserve’s interest-rate decision, EUR/USD climbs from 1.1500 as the Dollar retreats from highs

EUR/USD rose on Wednesday as the US Dollar eased from daily highs ahead of the Federal Reserve decision at 18:00 GMT. The pair traded near 1.1518, after briefly falling below 1.1500 in the European session. The Dollar had earlier found support after reports of an attack on Iran’s South Pars gas field, adding strain to energy markets amid the US and Israeli conflict with Iran. Higher oil-related inflation risk increased expectations that US rates may stay higher for longer.

Us Producer Price Index Surges

US Producer Price Index data also supported that view. Headline PPI rose 0.7% MoM in February versus 0.5% in January and a 0.3% forecast, while the annual rate rose to 3.4% from 2.9%; core PPI increased 0.5% MoM and 3.9% YoY. US Treasury yields edged up and the Dollar Index traded around 99.77, up 0.22% on the day. Eurozone inflation data drew little response, with core HICP at 0.8% MoM and 2.4% YoY, and headline HICP at 0.6% MoM and 1.9% YoY. The Fed is expected to keep rates at 3.50%–3.75% for a second meeting. Markets previously priced at least two 2026 cuts, but now do not fully price one 25 bps cut, with attention on Powell guidance and the dot plot. The recent spike in US producer prices, combined with the new geopolitical stress from the Middle East, points directly to higher market volatility in the coming weeks. We are seeing this reflected in options markets, where the MOVE Index, which tracks bond market volatility, has jumped to its highest level this year. This environment suggests traders should prepare for significant price swings around central bank announcements.

Fed Policy Outlook And Market Volatility

This strong US inflation data makes it very difficult for the Federal Reserve to justify any near-term interest rate cuts. According to the CME FedWatch Tool, the market-implied probability of a rate cut by June has collapsed from over 50% last month to less than 15% as of this morning. This backdrop strongly supports long US Dollar positions against currencies with less inflationary pressure. For the EUR/USD pair, we see a clear policy divergence forming between the Federal Reserve and the European Central Bank (ECB). While US annual producer inflation is accelerating to 3.4%, the Eurozone’s headline consumer inflation is sitting at just 1.9%. This gap gives the ECB far more flexibility than the Fed, creating a fundamental case for continued EUR/USD weakness. The attack on Iranian energy infrastructure has pushed Brent crude oil prices back over $100 a barrel, a move that directly fuels global inflation fears. We remember from the energy shock in 2022 how this can force central banks to remain more aggressive than markets anticipate. This historical parallel supports positioning for US interest rates to remain elevated for the remainder of the year. Given this outlook, buying put options on the EUR/USD seems like a prudent strategy to position for further downside. The key event will be the Fed’s dot plot later today, as a shift to project zero rate cuts in 2026 would likely trigger the next leg down for the pair. We should be looking for a potential move toward the 1.1350 support level seen in late 2025. Create your live VT Markets account and start trading now.

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