The Bank of Canada has lowered its overnight rate target by 25 basis points to 2.5%. The Bank Rate is now at 2.75%, and the deposit rate is 2.45%.

Global Economic Slowdown

Global economic growth is slowing down because of higher US tariffs and uncertainty. In the US, businesses are still investing, but consumers are being cautious, and job growth is slowing. In the Euro area, growth has slowed, and China’s economy is also weakening. Financial conditions have improved, with rising stock prices and lower bond yields, while Canada’s exchange rate remains steady. Canada’s GDP dropped by about 1.5% in the second quarter. Exports fell by 27% due to trade uncertainties, and business investment decreased, although consumer spending and housing showed good growth. Slow population growth and a weak job market could limit future household spending. Employment has fallen, especially in sectors sensitive to trade. The unemployment rate rose to 7.1% in August, indicating slower job growth. The Consumer Price Index (CPI) inflation stood at 1.9% in August, with core inflation around 3%, though the monthly increases have moderated. The reduction in the Bank’s policy rate aims to manage economic risks. The Governing Council is watching how trade impacts exports, investment, jobs, and inflation. The Bank is focused on keeping prices stable and supporting economic growth.

Domestic Economy Weakening

The Bank of Canada’s 25 basis point rate cut clearly shows that the domestic economy is weakening faster than expected. This cautious approach, prompted by a significant 27% drop in exports and a rising unemployment rate of 7.1%, hints at more rate cuts ahead. Traders should consider preparing for lower interest rates by using instruments like BAX futures or opting for fixed rates in swaps, as overnight index swaps now indicate over a 60% chance of another cut before the year ends. The difference between a cutting Bank of Canada and a US economy with rising inflation could put downward pressure on the Canadian dollar. This split in policy makes holding US dollars more appealing. We expect the USD/CAD exchange rate, which surged to 1.3980 after the announcement, will challenge the 1.4100 level in the coming weeks. While lower rates may benefit equities, the reason for this cut raises concerns, given the 1.5% decline in Canadian GDP last quarter. The S&P/TSX Composite Index might find temporary relief, but weakness in trade-sensitive sectors like industrials and materials is likely to limit any gains. It’s wise to use options to hedge against potential losses, as volatility expectations shown by the VIXC index have already risen above 20. The report highlights slowing global growth, especially in China and the Euro area, which raises concerns about demand for commodities. This global slowdown poses challenges for crude oil, a vital Canadian export. Even with stable prices recently, WTI crude trading near $78 a barrel could experience pressure if upcoming global manufacturing data confirms this trend. Create your live VT Markets account and start trading now.

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The Bank of Canada has cut interest rates by a quarter-point, lowering them from 2.75%. Economists widely expected this move after a previous rate cut in March. Rate cuts began last June. Global economic growth is slowing down. Core inflation has been around 3% lately, but the earlier increases in price have decreased. Underlying inflation is about 2.5%. Removing most tariffs on US goods should help ease price pressures.

Governing Council’s Careful Approach

The Governing Council is being cautious due to various risks and uncertainties. Trade changes are likely to continue causing costs, which can impact economic activity. The Council wants to support growth while keeping inflation in check. The Council is looking into the impact of US tariffs and changes in trade relationships on exports. They are also keeping an eye on how these factors might influence business investment, jobs, and household spending. Disruptions in trade and supply chains could affect consumer prices and inflation expectations. Before the announcement, the USD/CAD exchange rate was 1.3761, which increased by 23 pips. The market largely anticipated the rate cut and expects more easing by June, including today’s 25 basis-point reduction. With the Bank of Canada easing rates while the US Federal Reserve holds steady, the gap in policies between the two countries is growing. Recent US data from August 2025 shows core inflation still at 3.2%, indicating that the Fed is unlikely to lower rates soon. This situation favors strategies that benefit those holding US dollars against Canadian dollars, likely pushing the USD/CAD rate towards 1.4000, a level last seen in early 2024.

Outlook for Canadian Yield Curve

The rate cut should lead to a steepening of the Canadian yield curve, a common pattern seen at the beginning of past easing cycles. This suggests that short-term bond yields will drop faster than long-term yields. Traders should consider steepener trades, which involve buying two-year Government of Canada bond futures (BAX) and selling ten-year bond futures (CGB). The Bank’s cautious position indicates that future rate cuts depend greatly on incoming data, especially since underlying inflation is still around 2.5%. The market is currently pricing in a 52% chance of another cut in October. Therefore, upcoming employment and CPI inflation reports are crucial for market movement. We recommend buying options straddles on the Canadian dollar, which can profit from significant price changes in either direction as a good way to manage this risk. Looking ahead, the market expects just over one more 25-basis-point cut by June 2026. This seems low since Canadian business investments have already decreased for two consecutive quarters in 2025, a sign of a potential economic slowdown. We believe there’s an opportunity to position for a more aggressive cutting cycle than what the market currently indicates, possibly through interest rate swaps that pay a floating rate and receive a fixed rate. Create your live VT Markets account and start trading now.

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Shares of Lyft, the ride-hailing service, jumped 13% in pre-market trading. This rise came after Waymo announced plans to start a self-driving taxi service in Nashville next year, partnering with Lyft for the first time. Waymo’s approach varies by city. In some places, they use only the ‘One’ app, while in others, like Atlanta and Austin, they partner with Uber. Lyft’s stock initially rose over 20% but settled at a 13% increase when the market opened. The robotaxi concept is attracting a lot of market interest, leading to high valuations for companies in this field, including Tesla. However, the economics of such services are still untested, with issues around safety and large-scale cleaning unresolved. In Nashville, Lyft will manage Waymo’s fleet, ensuring the vehicles are ready, maintained, and operating smoothly. Waymo is part of Google, whose stock has reached $250 as it competes with ChatGPT and the new Nano Banana app. Despite Lyft’s positive news, Uber remains the ride-hailing leader with a market cap 25 times larger than Lyft. On September 17, 2025, Lyft’s stock surge caused a spike in implied volatility. This presents a good short-term opportunity for selling options premiums for those who think the initial excitement—responsible for the 20% rise—will soon fade. For example, implied volatility for short-term Lyft options has likely increased above 70%, offering chances to sell covered calls or credit spreads to benefit from time decay. While the Waymo partnership is a boost for Lyft’s long-term prospects, Lyft has faced challenges against its bigger rival. We’ve seen similar optimism before, with past spikes in 2024 that eventually declined as operational realities became clear. The path to profitable autonomous ride-hailing is long and will encounter regulatory hurdles and public perception challenges, similar to those experienced in San Francisco and Phoenix years ago. The news also presses on Uber, but its market leadership is significant. Uber has held around 75% of the U.S. ride-hailing market through 2024, making this single-city partnership with Lyft a minor concern. Some traders might consider buying puts on Uber as a hedge or part of a trade against a long position in Lyft. It remains essential to remember that the economics of robotaxis are still largely speculative, despite the market’s enthusiasm. The operational issues, such as fleet management, cleaning, and security, are the same challenges that faced early autonomous vehicle rollouts back in 2023. Therefore, long-term bullish strategies, like buying long-dated call options on Lyft, should be treated as highly speculative bets on a model that hasn’t yet proven itself. For Google, this partnership is a small detail amid its extensive scale and recent achievements. The company’s stock is more influenced by broader advertising trends and its AI competition than by the details of a single city’s Waymo fleet. As a result, we don’t expect this development to significantly affect options activity for GOOGL.

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Gold prices rose by $18 after hitting a session low, following an initial drop before the Federal Open Market Committee (FOMC) meeting. Earlier in the session, gold cut a $38 decline down to just $12, showing strong interest from the market. Traders appear eager to buy gold, expecting the Fed to adopt a dovish approach soon. Many believe there will be calls to lower rates soon, no matter the current developments.

Global Factors Influencing Gold Prices

Global issues are impacting the gold market. The ongoing conflict in Ukraine is causing divides between eastern and western regions. At the same time, trade tensions in the US are reversing some benefits of globalization, which brings various risks. These circumstances are making gold seem like a safer choice. Earlier today, gold prices fell to about $2,520 before the FOMC announcement, but that dip was quickly reversed. Prices climbed back near $2,550, indicating strong buyer interest. This rapid recovery shows that buyers are ready to jump in when given a chance. This interest likely comes from the belief that even if the Fed sounds tough now, they face limitations. With increasing political pressure for lower rates and last week’s August CPI data reporting at 3.8%, many believe the Fed will eventually have to shift to avoid a deeper economic downturn. There’s a sense of overlooking any immediate hawkishness from the central bank.

Gold As A Safe Haven Asset

The overall environment continues to support gold as a safe haven. Since the Ukraine conflict started in 2022, geopolitical tensions have only worsened, and recent failures in trade discussions add to the risks. This situation is a key reason why central banks are buying gold as a part of their reserves, with Q2 2025 data showing an addition of 215 tonnes to their official holdings. For traders, this suggests that buying call options on gold futures or related ETFs could be a smart move in the coming weeks. Given the current strength, consider targeting options slightly above the market price with expirations in October or November to take advantage of a likely breakout. Keep in mind that implied volatility is high, making options pricier but also more reactive to significant market shifts. Create your live VT Markets account and start trading now.

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Yesterday, the USDCHF fell to new lows for 2025, dropping below 0.78714. Today, the pair has been fluctuating around this level, moving slightly above and below yesterday’s low. The pair reached its lowest point since September 2011, hitting a 14-year low of 0.78544. After this drop, the market entered a consolidation phase, leading to a slight bounce back.

Consolidation Phase

This bounce briefly pushed USDCHF above the 100- and 200-bar moving averages on the 5-minute chart. However, it hit a wall near 0.78784, causing the price to trade sideways within a tight 16-pip range. The current range is between 0.78621 and 0.78784, leaving traders searching for a clearer direction. Longer-term charts are being analyzed to understand these 14-year lows, while shorter-term charts are looked at for momentum signals. The significant drop below 0.78714 confirms a strong bearish trend for USDCHF, reaching levels we haven’t seen in 14 years. After such a big move, this consolidation period is a chance to prepare for the next push downward, not an end to the trend. Small rebounds toward the old low could be seen as opportunities for further downside positioning. This trend is backed by differing central bank policies. The US Federal Reserve is now expected to cut rates by the end of the year, following lower inflation figures of 2.8% in August 2025. Meanwhile, the Swiss National Bank has signaled no plans to stop its fight against inflation, attracting safe-haven flows into the franc amid slowing global growth. This mix of a dovish Fed and a hawkish SNB creates strong headwinds for this pair.

Trading Strategies

For those trading options, the high implied volatility makes outright put buying costly, but it also suggests the potential for another significant drop. We should consider bearish strategies like put spreads to reduce entry costs while still profiting from a continued fall toward the 0.7800 level. This way, we can stay active without paying too high a premium amidst the current uncertainty. In the short term, we should wait for a clear break from this narrow range. A decisive close below the new low at 0.78544 would trigger adding to short positions in futures or CFDs. Until then, the market remains balanced, and starting large new positions in this choppy environment is risky. We must also be cautious as the franc strengthens, remembering the extreme actions taken by the Swiss National Bank in 2011 to weaken their currency when it rose too quickly. While a repeat is unlikely, the risk of verbal or actual intervention from the SNB increases with each new low. We should keep this risk in mind and use stop-losses to protect our positions from sudden policy changes. Create your live VT Markets account and start trading now.

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Impact of Rate Hikes

The weak housing report for August shows that the rate hikes in 2023 are still affecting the economy. This should make us cautious about sectors that rely heavily on economic growth. The report indicated housing starts at 1.307 million, which is much lower than expected and brings us closer to the lows we saw after the pandemic. Now, the market is adjusting to a higher chance that the Fed will lower rates sooner, likely in the first quarter of 2026. It’s a good idea to keep an eye on options for SOFR futures to prepare for this change. However, the recent Consumer Price Index report from August 2025 shows core inflation stubbornly above 3%, putting the Fed in a tough spot.

Potential Market Strategies

For equity traders, this news hits homebuilders and related sectors hard. We should think about taking bearish positions on housing ETFs. The SPDR S&P Homebuilders ETF (XHB) has already dropped over 4% in the past month. This new data could push the sector down further as hopes for a quick recovery diminish. If the Fed acts too quickly, there’s a real risk that long-term bond yields might rise due to inflation concerns. This could lead to a classic curve steepening event. In this case, current 30-year mortgage rates, currently averaging 6.15% according to Freddie Mac, may not decrease significantly. We’ll be closely watching the spread between 2-year and 10-year Treasury yields for any signs of this trend. This ongoing economic weakness and the possibility of a more dovish Fed are likely to weaken the US dollar. We expect the Dollar Index (DXY) will struggle and could test its recent lows. This trend makes long positions in currency pairs like EUR/USD increasingly appealing in the weeks ahead. Create your live VT Markets account and start trading now.

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The USD is mostly stable as we wait for rate decisions from the Federal Reserve and the Bank of Canada. The Fed is expected to lower rates by 25 basis points to 4.25%. This would be its first rate cut since December 2024, following disappointing US job figures. Similarly, the Bank of Canada is projected to announce a 25 basis point cut. This expectation arises due to economic issues like a 0.4% drop in GDP in the second quarter and rising unemployment. With inflation now at 1.9%, a rate cut seems justified.

Currency Movements

Currency shifts show that the EURUSD has dropped by -0.24%, after a previous rise. The USDJPY fell by -0.12%, approaching important moving averages. The GBPUSD is nearly unchanged at -0.02%, while the USDCAD saw a small increase of 0.08%. US stock indices are mixed before the market opens. The Dow is up by 32 points, but the S&P and NASDAQ have fallen by -2.26 points and -16.25 points, respectively. In commodity markets, crude oil is at $64.23, gold is down by $20.67, silver has decreased by $0.88, and Bitcoin has dropped by $560. European stock indices are showing mixed results, reflecting the recent changes in the market. The Federal Reserve is likely to cut rates by 25 basis points today, the first reduction since last December. This action follows signs of a slowdown, highlighted by the August jobs report showing only 95,000 new jobs compared to an expected 180,000. The unemployment rate also rose to 4.1%, indicating a weaker labor market.

Market Reactions

With both the Fed and Bank of Canada making decisions today, we are seeing an increase in implied volatility. The VIX index has risen to 19 this week from a summer low of 14. Derivative traders are preparing for a possible market shift; the Fed’s future guidance may be more crucial than the anticipated rate cut itself. A key concern is whether this cut is a one-time “insurance” move or signals the beginning of a longer easing cycle. In Canada, the anticipated rate cut is based on clear economic signals. The second-quarter GDP contracted by 0.4% annualized, and the unemployment rate is now at 6.3%. This gives the Bank of Canada a strong reason to ease policy today. For currency options, the USDCAD faces the challenge of two central banks easing rates, making strategies like short strangles appealing if the pair stays within a range. The EURUSD’s volatility shifted after yesterday’s rally, making call options more expensive ahead of the Fed’s announcement. Meanwhile, the USDJPY is testing its 100-day moving average at 146.19, which could be key for structuring put option strategies. We should remain cautious, as the first rate cut in a cycle does not always signal good news for risk assets. Looking back at the Fed’s first cut in July 2019, markets initially declined because the guidance was less dovish than expected. The pre-market weakness in the Nasdaq and the significant $20 drop in gold prices from their record highs indicate that some of this caution is already being factored in. Create your live VT Markets account and start trading now.

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This morning in Europe, gold prices dropped from their record highs as traders awaited the Federal Open Market Committee’s decision. The dollar remained stable after a recent slump, with the EUR/USD pair showing minor recovery. Meanwhile, the Chinese government has instructed tech companies to stop buying Nvidia’s AI chips. The European Central Bank’s de Guindos mentioned that the current interest rate is appropriate, while other ECB officials emphasized the importance of being ready with monetary policy. **Economic Data Overview** Recent economic figures showed that the UK’s Consumer Price Index (CPI) for August met expectations at +3.8% year-on-year, which may lead the Bank of England to pause any policy changes. However, the Eurozone’s CPI slightly missed the preliminary estimate at +2.0%. In the US, mortgage applications jumped by 29.7% for the week ending September 12, up from +9.2% previously. Markets remained mostly stable, with the Japanese yen leading and the euro lagging behind. European stocks showed little movement, and US S&P 500 futures ticked down by 0.1%. Commodities also fell, with gold down 0.7% to $3,665.19 and WTI crude oil down 0.7% to $64.09. Bitcoin decreased as well, settling at $116,347. Investors are cautious, holding off on big moves until the FOMC decision is announced. The Federal Reserve is the center of attention today, creating a calm yet tense environment in the markets. Such situations can lead to volatility, as any unexpected move from the Fed could cause significant price changes. The CBOE Volatility Index (VIX) is trading near 18, indicating this expectation of a breakout. The US 10-year yield is just above 4%, a crucial level that depends entirely on the Fed’s upcoming statements. The remarkable 29.7% jump in mortgage applications is the largest weekly increase since the housing market began its recovery in 2024, giving the Fed reasons to maintain a hawkish stance. It might be wise to consider positions that benefit from higher yields, like buying puts on Treasury futures. **Potential Market Strategies** If the Fed takes a hawkish approach, the dollar could rise, pulling the EUR/USD below the 1.1800 mark. ECB officials appear divided, which could mean they lag behind aggressive moves from the US. This sets up a profitable opportunity to short the euro against the dollar using options or futures. In the equity market, caution is advised as US futures show some weakness. News about China’s ban on Nvidia chip purchases adds a significant headwind for the tech sector. Buying protective put options on indices like the Nasdaq 100 may be a wise strategy ahead of the Fed’s announcement. Gold is pulling back from its recent highs near $3,700, indicating that some traders are taking profits before the Fed’s decision. If the Fed suggests that interest rates will remain high for an extended period, as seen during the 2022-2023 tightening cycle, non-yielding gold could face notable pressure. This presents an opportunity to bet on further declines from these high prices. On the other side of the Atlantic, European data suggests a different path. The final Eurozone inflation rate reached the 2.0% target, a level not consistently seen since before the major inflation surge of the early 2020s. The steady UK inflation reinforces the notion that European central banks will likely hold off on changes, creating a policy divergence with the US. Create your live VT Markets account and start trading now.

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The Federal Reserve is set to restart its journey to a neutral interest rate after its last cut in December 2024. The Fed’s statement is likely to acknowledge the weakening labor market while keeping its focus on high inflation and uncertainty, without changing its quantitative tightening measures. Most members are expected to support a 25 basis points cut. However, surprises could occur with different voting patterns, such as a 50 basis points cut or some members voting to keep rates unchanged. The Summary of Economic Projections, especially the dot plot, is highly anticipated. The market expects a total easing of 148 basis points by the end of 2026, which includes three cuts in both 2025 and 2026. The Fed’s previous forecasts expected fewer cuts by 2026. Deviations from these market predictions, like fewer cuts in 2025, could be seen as hawkish.

Press Conference Focus

During the press conference, Fed Chair Powell is expected to discuss the current weakness in the labor market, which aligns with his recent comments. Any surprises could arise if he places more emphasis on inflation concerns than on labor weakness, or the other way around. This could change market expectations for the Fed’s future policies. In today’s meeting, the Federal Reserve is expected to announce the first interest rate cut since December 2024, likely a 25 basis point reduction. Recent data shows a clear slowdown in the labor market, with the August jobs report showing an addition of just 95,000 jobs and the unemployment rate rising to 4.2%. However, with Core PCE inflation still at 2.8%, the Fed is balancing the need to support employment against the need to bring inflation back to its target. Derivatives traders will focus on the new dot plot, which will indicate the Fed’s expectations for future rates. Currently, the market is pricing in nearly three more cuts this year and three more in 2026. If the Fed’s new projections indicate fewer than three cuts for 2026, this would be surprising and might lead to a sell-off in long-term interest rate futures. Market reactions will depend on any surprises in the rate decision itself. A 25 basis point cut is widely expected, but if the outcome is hawkish—like no cut or fewer members supporting a larger 50 basis point reduction—it could lead to a shift in short-term interest rate markets. We should closely observe the number of dissenters, as this will reflect the committee’s confidence in their future direction.

Powell’s Press Conference Tone

During his press conference, Powell’s tone regarding the labor market will be crucial. Following his focus on employment concerns at the August Jackson Hole symposium, traders will be attentive to any firm commitment to take action if weakness persists. Strategies that profit from increased bond market volatility, like straddles on Treasury ETFs, might be valuable for positioning ahead of significant market moves based on his comments. This is a key moment following the aggressive rate hikes of 2022-2023 and the long pause that characterized most of this year. Today’s guidance will set the trading landscape for the rest of 2025. If the Fed signals greater concern about economic slowdown than about inflation, it could increase expectations for future easing, affecting everything from SOFR futures to currency options. Create your live VT Markets account and start trading now.

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Impact of Falling Mortgage Rates

The Mortgage Bankers Association noted a significant 29.7% rise in U.S. mortgage applications for the week ending September 12, 2025. This follows a smaller increase of 9.2% in the previous week. The market index climbed from 297.7 to 386.1. The purchase index went up from 169.1 to 174.0, and the refinance index surged from 1012.4 to 1596.7. The average 30-year mortgage rate decreased slightly from 6.49% to 6.39%. Generally, when mortgage rates drop, we see an increase in applications, highlighting an inverse relationship. This rise in demand aligns with a minor dip in mortgage rates, which could raise concerns for the Federal Reserve. Although higher rates have restricted mortgage demand, the recent decrease might have sparked renewed interest. The large 29.7% jump in mortgage applications highlights how reactive the housing market is to rate changes. This increase, driven by a small drop in the 30-year rate to 6.39%, suggests that many potential buyers have been waiting on the sidelines. The refinancing index showed this trend most dramatically, skyrocketing by nearly 60%.

Federal Reserve’s Cautious Stance

For the Federal Reserve, this information serves as a warning that inflation pressures are still strong. After working hard to reduce inflation, the Fed might be reluctant to indicate any significant policy easing, especially in response to such a small rate decrease. We should expect them to maintain their “higher for longer” approach. In light of this, we should consider interest rate derivatives that bet against market expectations for rate cuts in late 2025 or early 2026. Strategies like selling December 2025 SOFR futures or buying puts on Treasury bond ETFs could be viable options. The market may need to adjust its future rate expectations to align with the Fed’s cautious outlook. This situation is reminiscent of 2023, when the market repeatedly anticipated a Fed pivot only to be disappointed, causing bond market fluctuations. The recent CPI report indicates that core inflation remains stubborn at 3.1%, providing the Fed with a basis for its caution. This historical comparison and the current inflation data reinforce the likelihood of sustained higher rates. Given the potential for market adjustments, we might anticipate increased volatility in the upcoming weeks. Purchasing VIX call options with October or November expirations could serve as a smart hedge or a bet on market instability. If the broader market realizes that rate cuts are not imminent, a risk-off sentiment could quickly take hold. While the current data appears favorable for homebuilders, the long-term outlook could be negative if the Fed maintains tight conditions. It may be wise to buy puts on homebuilder ETFs like ITB several months out, betting that the reality of high borrowing costs will eventually overshadow this temporary increase in buyer interest. Create your live VT Markets account and start trading now.

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