The Federal Reserve announced a cut in interest rates of 25 basis points, which was expected. Growth estimates for September have been updated, and two more rate cuts are projected for 2025. In his remarks, Fed Chair Powell pointed out slowing GDP growth and potential risks in the labor market. The Bank of Canada also lowered rates by 25 basis points. Meanwhile, the Atlanta Fed maintained its economic forecasts at a growth estimate of 3.4%, while housing starts in the US for August were below expectations, coming in at 1.307 million. Market reactions saw the S&P 500 decline by 0.1%, WTI crude oil prices dropping by $0.50 to $64.04, and US 10-year Treasury yields rising by 5.4 basis points to 4.08%. Gold prices fell by $32 to $3,657. In the currency market, the USD gained strength while the EUR weakened. At first, markets viewed the Fed’s announcement as dovish due to the anticipated rate cuts, but opinions changed during Powell’s press conference.

The USDJPY Pair

The USD/JPY pair showed some movement, starting at 146.25, dropping to 145.50, then peaking at 147.02. The market is forecasting 43.7 basis points in easing by the end of the year, but December’s meeting remains uncertain. Historically, once the Fed starts cutting rates, that trend usually continues. We should be ready for increased market volatility in the coming weeks. Powell’s mention of “risk management,” along with a divided Fed vote, indicates that future policy is uncertain, which can lead to market swings. Looking at options on the VIX index could help protect against sharp moves, especially since it has shown sustained increases after initial Fed cuts, like in July 2019. The dollar’s rise after a rate cut signals a positive view of the US economy compared to others. The Bank of Canada’s simultaneous cut and cautious comments from the ECB highlight this difference in monetary policy. We should consider call options on the dollar, as the interest rate gap between US and German 2-year bonds has widened to over 150 basis points this year, a trend we expect to continue. The equity market seems to lack clear direction, with the S&P 500 ending the day flat after a bumpy session. This indicates that while a significant crash is not likely, any rally might be slow until the Fed provides more clarity. Strategies like selling iron condors on the SPX index could work well in a sideways market over the next few weeks.

The Rise in 10-Year Yield

The increase in the 10-year yield to 4.08% is a key indicator, as the bond market questions the Fed’s optimistic outlook. The latest inflation data from August indicated that it remained high at 3.6%, leading traders to believe a strong economy will prevent the additional cuts expected this year. We might look at put options on bond ETFs like TLT, anticipating that yields will stay steady or rise. Gold’s significant drop to $3,657 highlights its vulnerability to a strong dollar and rising real interest rates, making it less appealing to hold a non-yielding asset. Historically, when the US Dollar Index (DXY) surpasses important levels and real yields are positive, gold struggles. In the short term, buying protective puts on gold futures or related ETFs may be a wise approach. Create your live VT Markets account and start trading now.

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The Bank of Japan is expected to keep its interest rates at 0.5% during the policy meeting on September 18-19. This would be the fifth time in a row that the rate remains unchanged since it increased back in January. Board members generally feel that raising rates now would be too early, and the market agrees. They are closely monitoring the impact of recent U.S. tariffs, especially on industries like automotive exports, and how these tariffs might affect wages and investment in Japan.

Market Expectations

There aren’t likely to be any market surprises, and the yen is expected to stay stable unless new tariff-related risks emerge. Japanese stocks, especially those of exporters, may trade cautiously as the automotive sector reassesses its outlook. The Bank of Japan’s steady policy supports different trends compared to the Federal Reserve, which keeps global yield spreads in the spotlight. The upcoming Bank of Japan meeting is viewed as an uneventful occasion, so now might be a good time to adopt strategies that benefit from low volatility, such as selling strangles on USD/JPY options. This week, implied volatility for one-month options has dropped to 7.2%, indicating that the market expects little change. While this setup profits from stability, we need to stay alert for any comments on tariff risks that could lead to unexpected movements. We also see a chance to protect against potential declines in Japanese stocks by purchasing put options on the Nikkei 225 index. This perspective is supported by recent trade data from August 2025, showing a 1.5% decline in auto exports to the U.S. Key exporters may soon have to update their yearly forecasts, which could heavily affect the index in the coming weeks.

Macro Play

The difference in policies between the BOJ and the U.S. Federal Reserve is the most significant macro trend currently. With the U.S. Fed funds rate steady at 4.75%, the yield gap between the two countries continues to favor the yen carry trade. This strategy of borrowing in yen to invest in higher-yielding U.S. assets has been steadily profitable, similar to trends seen from 2022 to 2024. Looking back, the BOJ’s decision to maintain its policy rate is a familiar one, reminiscent of the long periods of stability following the introduction of negative interest rates in 2016. However, there is now a clear focus on U.S. tariffs as a major risk, marking a shift from earlier in the year. Therefore, while a rate hold is expected, the reasoning behind it may be becoming more cautious. Create your live VT Markets account and start trading now.

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New Zealand’s economic growth data for the second quarter is expected to show a decline from the previous quarter. However, year-on-year growth should improve compared to the stagnation of the first quarter. The New Zealand dollar has been influenced by recent actions from the Federal Open Market Committee and the reactions that followed. Australia will release job data for August, and unemployment is expected to remain steady. The Reserve Bank of Australia is not overly concerned about the labor market, even though there are signs of slowing growth.

Outlook For New Zealand Dollar

With New Zealand’s Q2 GDP data predicted to show a decline, we can expect the New Zealand dollar to remain weak. A hawkish statement from the US Federal Reserve yesterday has already pressured the kiwi, and disappointing growth figures may push it to new lows. For the next few weeks, buying NZD/USD put options seems like a smart way to protect against worse-than-expected economic results. Australia’s August jobs report is likely to reveal a stable picture, with unemployment projected to stay around 4.1%. This steady job market reinforces the Reserve Bank of Australia’s cautious approach, suggesting less volatility for the Aussie dollar compared to New Zealand. If the numbers meet expectations, selling short-dated volatility on AUD/USD may be a good strategy. The most promising opportunity in the coming weeks appears to be the difference between the two economies. A slowing New Zealand versus a stable Australia suggests strength in the AUD/NZD currency pair. Establishing long positions in AUD/NZD, possibly through futures contracts, seems to be a key strategy to benefit from this economic divide.

Market Dynamics

This situation echoes late 2023 when New Zealand faced a brief technical recession while Australia’s economy stayed robust, driven by resource exports. Current market pricing shows that options traders expect higher volatility for the NZD compared to the AUD in the upcoming month. This indicates that the market is preparing for more downside for the kiwi. Looking forward, the main influences will continue to be central bank policies and upcoming inflation data. The Fed’s indication yesterday of a possible rate hike in 2025 is likely to keep the US dollar strong, which may hinder both the NZD and AUD. Consequently, any long positions in the AUD should be hedged against the NZD rather than the strengthening US dollar. Create your live VT Markets account and start trading now.

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The Federal Reserve and the Bank of Canada both cut interest rates today. However, their comments were not as friendly as many had hoped, which caused some slowdown in the stock markets. Most major indexes ended the day slightly lower. The S&P 500 dropped by 0.2%, while the Nasdaq Composite fell by 0.4%. In contrast, the Dow Jones Industrial Average rose by 0.5%, the Russell 2000 increased by 0.4%, and the Toronto TSX Composite gained 0.1%.

Intraday Market Movements

There were significant changes throughout the trading day, especially after the Federal Open Market Committee’s announcement. These intraday shifts were clear on the market’s one-minute chart. The S&P 500 showed huge swings today, reversing a 1% gain to finish lower. This indicates how anxious the market is. The CBOE Volatility Index (VIX) spiked over 15%, closing above 21, which is its highest level in over a month. This suggests that we can expect options premiums to remain high in the coming weeks. The Fed’s mention of a “risk management cut” is key. It signals that this may not be the beginning of a long-term easing cycle. With job growth slowing to just 145,000 recently and core inflation staying stubbornly over 3%, the Fed’s next move is uncertain. This unpredictability makes directional bets with derivatives very risky. For traders wanting to protect their investments, buying put options on indices like SPY and QQQ is a simple way to hedge against a market downturn. A more economical option is using collars, which means selling an out-of-the-money call to fund the purchase of a protective put. This strategy sets a specific trading range, sacrificing some potential gains for added security.

High Implied Volatility

The high implied volatility also offers an opportunity for those who think the market will move sideways. Selling premium through strategies like iron condors on broad market ETFs could be rewarding if we stay within a set range. However, there is still a risk of a sharp breakout, so it’s wise to keep position sizes conservative. In July 1995, we saw a similar “insurance” cut that led to a period of economic growth and market gains. But that was during a time of low inflation, which is very different from our current situation. This historical comparison shows that while a smooth transition is possible, the future remains uncertain. Create your live VT Markets account and start trading now.

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**Gold’s Historic Rise** Gold’s value has gone up as the US dollar has decreased. This change reflects larger financial trends and expectations about US policies. Gundlach discussed how Federal Reserve chair candidates are chosen, suggesting that their alignment with the government’s goals is important. This has further boosted gold’s price as political factors impact financial markets. **Year-End Gold Strategy** With strong momentum, we expect gold to reach $4,000 by the end of the year. So far in 2025, gold has gained 45%, and the reasons behind this growth remain strong. Buying December call options is the best way to invest in this anticipated increase. This positive outlook comes from a weakening US dollar and ongoing inflation. Recently, the Dollar Index (DXY) dropped to 89.5, a four-year low, while inflation in August held steady at 4.8%. Since the Fed has hinted at pausing further rate hikes, there are few obstacles to gold’s rise. However, the current rally’s “ridiculous” nature, along with a surge of retail investors, suggests high volatility and the risk of sudden drops. This makes options expensive, which is why we should think about using bull call spreads. This approach lowers the initial cost and helps manage risk, allowing us to take advantage of price increases while protecting against unexpected declines. We have seen a similar pattern before, especially during the inflationary period of the late 1970s. The rapid rise from the lows of 2023 to now closely resembles that historical trend. It’s a reminder that political influences on monetary policy can drive long-lasting and powerful commodity trends. In the coming weeks, we should aim to reach our year-end target. We can focus on acquiring contracts for the $3900 or $4000 options for December. Waiting for a small dip or a consolidation period would be the ideal time to enter before the final surge up. Create your live VT Markets account and start trading now.

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Jay Powell noted a surprising rise in consumer strength this week. He mentioned that the main concern regarding current decisions is the labor market, but he sees no immediate job security issues. Powell indicated that if strong employment reports continue, a rate cut in December may not happen. He stated that households and banks are stable, and there are no major financial vulnerabilities.

Inflation Surveys Stay Strong

Inflation surveys were labeled as “rock solid.” Given the unexpected consumer strength, we need to rethink the chances of a December rate cut. The attention on labor market risks, without urgent alarm, indicates the policy will depend on future data. If strength continues, any easing expectations could be pushed to 2026. Consider the latest jobs report from early September, which showed the U.S. economy added 210,000 jobs in August 2025, keeping the unemployment rate low at 3.7%. This strong data suggests that the labor market does not need immediate rate cuts. This situation is similar to late 2023, when the market incorrectly anticipated aggressive easing that never happened. For interest rate traders, this means the flattening of the yield curve may pause. It might be wise to reconsider bets on a near-term policy change and instead look at options on Fed Funds futures that will benefit if rates stay the same through December. The market currently sees about a 40% chance of a cut by year-end, which now seems overly optimistic.

Equity Derivatives And Market Outlook

The claim that inflation surveys are “rock solid” matches the August 2025 CPI data, which showed core inflation at 3.8% year-over-year. This persistent level, well above the 2% target, leaves little room for monetary easing. Therefore, trades that benefit from ongoing inflation, such as inflation swaps, could be worthwhile. In the realm of equity derivatives, this climate suggests limits on market gains and increased downside risk if the market must adjust its rate expectations. We might see rising volatility, with the VIX, which has been around 15, likely to increase. Protective put strategies on major indices like the S&P 500 may become more appealing in the upcoming weeks. With households and banks in good shape, a severe economic downturn seems less likely, but a “higher for longer” rate environment is now the assumption. This should support the U.S. dollar, especially as other central banks like the ECB are signaling a more dovish approach. We could see the U.S. Dollar Index (DXY), currently near 106.50, test its earlier highs from this year. Create your live VT Markets account and start trading now.

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After the Federal Open Market Committee meeting, many investors decided to take profits. Fed Chair Jerome Powell described the recent rate cut as a “risk management cut,” which was not what the market expected. Investors were hoping for an additional 150 basis points in cuts this year and next but found Powell’s comments disappointing, as he did not suggest a more aggressive approach.

Market Fluctuations

As a result, the S&P 500 fluctuated and is now down by 28 points. Initially, there was selling of the US dollar and buying of gold, but this trend reversed after the meeting. After the Fed’s “risk management cut” on September 17, 2025, market disappointment became clear. Powell didn’t hint at the series of rate cuts that traders had anticipated. We may now face increased volatility as the market adjusts its expectations for the remainder of the year. This uncertainty is reflected in the VIX index, which has soared over 20% to around 22.5, a level not seen since last spring’s banking troubles. For derivative traders, buying near-term put options on the S&P 500 could be a smart way to hedge against the current wave of profit-taking. With volatility likely to remain high, strategies that capitalize on price fluctuations may be beneficial.

Dollar Reversal

The US dollar has completely reversed its initial losses and is now strongly positive. A less-dovish Fed suggests that US interest rates could stay higher for longer compared to other countries, which supports dollar strength. We saw a similar reaction in the summer of 2019 when Powell used “mid-cycle adjustment” language, causing a sharp market shift. This renewed strength in the dollar makes call options on dollar-tracking ETFs an attractive trade. The market’s expectation of an additional 150 basis points in cuts seems overly optimistic. The 2-year Treasury yield, which reacts quickly to Fed policy, has barely moved and is now rising, indicating that bond traders also doubt significant cuts are on the way. Gold has been adversely affected by a stronger dollar and the Fed’s cautious approach. It has lost all gains from after the announcement, falling over 2% from its session high and dropping below the important $2,150 level. Given this shift, buying put options on gold ETFs could be a direct way to prepare for further declines if the dollar continues to rise. Create your live VT Markets account and start trading now.

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Demand for labor is falling faster than supply, mainly due to immigration changes. Employment patterns are largely influenced by immigration policies. Current policies still require a cautious approach, and previous patience is seen as necessary. There is no strong backing for a 50 basis point change today, indicating a shift towards a neutral stance.

Market Response

The market reacted negatively to mixed signals, causing the S&P 500 to drop 34 points, or 0.5%. The risk of inflation has slightly decreased since April, while the labor market faces potential downturns. A meeting-by-meeting strategy is being used, focusing on data analysis. Predictions vary, with ten members expecting two more rate cuts this year, while nine anticipate fewer cuts. Powell did not comment on a specific court case. Adjustments to non-farm payrolls met expectations, but Powell disagrees with current market valuations. Tariffs mainly impact intermediary companies, which plan to pass these costs onto consumers. Powell offered no updates on his possible exit in May. Today’s message is one of uncertainty, which fuels market volatility. The Fed is managing risks rather than following a clear direction, making the environment challenging. The VIX rose above 18, indicating that traders might want to buy protection or sell high premiums on short-term options.

Disconnection Between The Fed And Market Expectations

There’s a gap between the Fed’s cautious stance and market expectations. Fed funds futures suggest a nearly 70% chance of another rate cut by November, even as Powell does not support this idea. Upcoming data releases will likely trigger strong market reactions, particularly regarding inflation and job numbers. The focus on “downside risks” in the labor market is crucial. The August jobs report showed only +150,000 new jobs, with the unemployment rate rising to 4.1%. Any further weakness could push the Fed to adopt a more accommodating stance. This makes long-term options that predict lower rates appealing, as they could change quickly if the labor market worsens. At the same time, we can’t overlook that policy remains “restrictive” because inflation is not fully under control. August’s Consumer Price Index revealed core inflation at 3.4%, well above the 2% target. This persistent inflation is why the Fed is hesitant, creating risks for traders. The current situation resembles the mid-cycle adjustments seen in 2019. Back then, the Fed made several “risk-management” cuts without indicating a major easing cycle. That period led to erratic, range-bound trading, suggesting that strategies benefiting from sideways movements, like iron condors on the S&P 500, could do well in the coming weeks. Create your live VT Markets account and start trading now.

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Recent data indicates that GDP growth has slowed mainly due to lower consumer spending. On the bright side, business investment has increased during this time. Disinflation in service sectors continues, with job gains falling short of the breakeven rate. This suggests a drop in demand for labor. The likelihood of risks to employment has also grown.

Temporary Tariffs

It’s believed that current tariffs might be temporary, but they could still have long-lasting effects. Efforts are underway to make sure these one-time changes do not become a permanent problem. We’ve taken a step toward a neutral stance, allowing us to respond quickly to changes. Initial market movements reversed, with the US dollar returning to earlier levels. The Fed is hinting that its cycle of raising rates may be over. We are now more focused on *when* they will cut rates instead of *if* they will hike them again. The mixed signals from slowing consumer spending and rising business investment create a confusing environment for the market, leading us to anticipate more market volatility in the coming weeks. The chances of a rate cut by early 2026 seem to be growing, especially after the August 2025 jobs report, which showed a gain of only 85,000 jobs—far below the breakeven level. Derivative traders should keep an eye on SOFR and Fed Funds futures to adapt to this shift. The market expects at least two rate cuts by mid-next year.

Stock Market Implications

For stock indices, this situation is a double-edged sword. The chance of easier money is countered by the slowing economy causing it. This reminds us of the fourth quarter of 2018, when a pause by the Fed didn’t stop a slide in the equity market due to growth concerns. With added uncertainty from potential tariffs, purchasing VIX calls or using index option strangles could be a smart way to protect against a sudden market shift. The U.S. dollar quickly bounced back after its initial drop, indicating that the market isn’t fully convinced the Fed will cut rates before other central banks. However, if we see more weak data, like the recent 0.3% drop in August retail sales, the dollar may start to decline again. We might want to use options to prepare for a lower dollar, especially against currencies facing bigger inflation issues. With core services inflation now at a 3.2% annual rate, the risk of inflation speeding up again appears to be lessening. This mix of falling inflation and potential rate cuts is historically very good for gold. We should think about buying calls on gold futures or ETFs to take advantage of this situation. Create your live VT Markets account and start trading now.

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The Federal Reserve’s recent decision has had little impact on the overall stock market at first glance. The S&P 500 has dropped slightly, down by 2 points from its earlier level. In contrast, smaller cap stocks are reacting more positively to the Fed’s forecast. The Russell 2000 index, which tracks small cap stocks, has increased by 1.7% today, reaching its highest point since November 2024.

Federal Reserve Updated Forecast

The Fed’s updated forecast now predicts two interest rate cuts this year, up from one expected earlier. This boost in small cap stocks brings the Russell 2000 close to its all-time highs. This shift in the Fed’s outlook highlights the potential for small-cap stocks, which are very sensitive to interest rates. It may be a good time to buy call options on the Russell 2000 index (RUT) or its ETF (IWM) that expire in October and November 2025. Today, call volume surged to nearly three times the 30-day average, showing many traders are already acting on this. The Fed’s softer stance is supported by recent economic data suggesting further rate cuts are likely. The August 2025 Consumer Price Index report revealed core inflation dropped to 2.8%, its lowest since mid-2022. Additionally, recent employment data shows payroll growth slowing to under 100,000, giving the Fed plenty of reasons to ease financial conditions.

Divergence Trade Opportunity

The flat performance of the S&P 500 indicates that a divergence trade is possible. Before today, the Russell 2000 had only risen 4% this year, while the S&P 500 climbed 12%. This Fed decision could help small caps to close that gap. We can act on this by going long on Russell 2000 futures and shorting S&P 500 futures at the same time. We saw a similar situation in late 2023 when the market began anticipating the Fed’s rate cuts for 2024. During that time, small caps, which had lagged all year, experienced a strong rally that outperformed large-cap stocks. History shows these rotations can gain momentum quickly once they start. With more clarity on the Fed’s plans for this year, we can also expect less volatility in the broader market. The VIX index is already reflecting this, dropping below 14 for the first time in months. Selling out-of-the-money put spreads on the IWM is a smart way to capitalize on this anticipated stability and the underlying upward trend. Create your live VT Markets account and start trading now.

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