The Canadian Dollar is stable against a stronger US Dollar. Strong employment figures in Canada late last year initially boosted its value. This led markets to reconsider the possibility of interest rate cuts by the Bank of Canada, even with ongoing concerns about the Federal Reserve. The Canadian Dollar gained against the US Dollar as short-term interest rate spreads narrowed late last year. Recently, the US Dollar has been resistant in the upper 1.38 range. This level includes a significant retracement from the USD decline seen in November-December, a notable low from late October, and the 100-week moving average.

USD Trend Momentum

Current trends indicate that the US Dollar might stay strong. There’s potential for it to reach the 1.3950/00 range. USD support remains solid at 1.3810/20. This article has updated earlier references regarding Canadian employment data for December to ensure accuracy. The FXStreet Insights Team gathers market insights from experts, including analysis from both inside and outside the organization. The positive jobs report from Canada is backing the Canadian Dollar. Statistics Canada reported a gain of 45,000 jobs in December, prompting us to rethink how soon the Bank of Canada will cut its 4.25% policy rate. At the same time, markets are still anticipating possible easing from the US Federal Reserve after last month’s core US CPI figures came in slightly lower than expected.

Strategies for Resistance Levels

As the US Dollar tests important resistance levels in the upper 1.38 range, traders should consider strategies that could benefit if this barrier holds. One option is to buy USD/CAD put options with a strike price around 1.3850 or set up bear call spreads to collect premium. This strategy is supported by technical barriers, including the challenging 100-week moving average. However, trend momentum indicates that the USD might remain strong and rise towards the 1.3950 level. For traders expecting a breakout, buying call options with a 1.3900 strike price offers a way to capitalize on a potential USD rise. This gain could be triggered by any signs of weakness in the Canadian economy or a hawkish stance from the Fed. With the exchange rate at such a crucial point, implied volatility might be undervalued as we approach next week’s inflation reports. A long straddle strategy—buying both a call and a put at the same strike price and expiration—could be wise. This strategy allows profit from significant price changes in either direction, leveraging the current uncertainty in the market. Fundamental factors from late 2025, like narrowing Canada-US interest rate spreads and stable WTI crude oil prices around $82 a barrel, support the Canadian Dollar. These elements suggest that a significant drop in the CAD is unlikely. Thus, if the USD/CAD pair approaches 1.4000, it could be seen as an overextension, presenting a potential selling opportunity. Create your live VT Markets account and start trading now.

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Gold prices are slightly up as mixed US labor data affects market sentiment. The metal is trading around $4,490, recovering from a dip to $4,400. The US economy added 50,000 jobs, which is below the expected 60,000. The unemployment rate dropped to 4.4% from 4.6%, which was also lower than expected. The Federal Reserve is likely to keep interest rates steady in this month’s meeting, amid speculation about two rate cuts later on.

Focus On Inflation Expectations

Gold tends to benefit from lower interest rates since it does not yield any interest. The market’s attention is now on the University of Michigan’s survey of consumer sentiment and inflation expectations, as well as speeches from Federal Reserve officials. Geopolitical tensions are increasing, especially with the US extending its oversight on Venezuelan oil exports. Controversial statements from political leaders and unrest in various areas heighten caution, which boosts demand for gold. The US trade deficit has narrowed to $29.4 billion, the smallest since June 2009. Technically, gold prices are staying above the 21-day moving average, indicating a positive outlook. Key support levels are between $4,400 and $4,380, while resistance is at $4,500. A breakthrough could lead to past highs. Gold’s price tends to move inversely to US nonfarm payroll results, impacting market dynamics.

Puzzle For The Federal Reserve

The mixed US labor data from December 2025, which shows slower job growth but a lower unemployment rate, presents a challenge for the Federal Reserve. This suggests the Fed will likely remain cautious in its upcoming meeting. Their guidance will be crucial. This uncertainty creates a favorable situation for options traders to benefit from volatility using strategies like straddles or strangles. Market expectations for two rate cuts later in 2026 support a positive outlook for gold, as lower rates reduce the opportunity cost of holding the metal. Referring back to the 2023 and 2024 rate cycles, we noticed that market predictions for cuts were often more aggressive than what the Fed eventually implemented. Derivative traders might consider long-dated call options to take advantage of this easing trend but should remember that the timing of these cuts is uncertain. Geopolitical risks in Venezuela, Iran, and Asia keep demand for safe havens strong, providing a solid support for gold prices. A similar trend was seen in early 2022 during the Eastern Europe conflict when gold futures surged by over 5% in a month. Buying short-term, out-of-the-money call options can be a cost-effective way to prepare for a sudden price jump if any global tensions escalate in the coming weeks. From a technical perspective, gold is holding above the $4,387 moving average, indicating a bullish trend. The immediate hurdle is the $4,500 level; breaking above this could target the record high near $4,549. A bull call spread, like buying a $4,450 call and selling a $4,550 call, can be a risk-defined method to profit from potential price increases. The unexpectedly narrow US trade deficit, the smallest reported since 2009, may support the US dollar. A stronger dollar usually creates headwinds for gold, making the trading environment complex. Therefore, we should keep an eye on the U.S. Dollar Index (DXY); a rise above 104 could slow gold’s increase and prompt the use of put options to hedge long futures positions. Create your live VT Markets account and start trading now.

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UK Economic Indicators and Pound Sterling

The UK has few macroeconomic updates, putting pressure on the Pound Sterling. Concerns over growth and inflation linger following a downward revision of the S&P Global Services PMI. This situation makes it hard for the Bank of England to make decisions and stabilizes the euro-pound pair. Attention is now on UK employment data, which is expected to help clarify the Bank of England’s policy direction. The central bank suggests a slow approach to easing. The EUR/GBP pair is likely to show little clear direction in the short term due to mixed economic signals. The Euro strengthened against the Japanese Yen by 0.28%, and the USD rose by 0.03%. The GBP remained unchanged, while the USD dipped by 0.01% against the Euro. The table below shows percentage changes against major currencies, highlighting the Euro as the strongest against the Yen by 0.28%. In late 2025, the EUR/GBP pair traded around 0.8670 without a clear trend, reflecting mixed economic signals. However, UK employment data released in December turned out to be bearish, showing ongoing wage pressures and shifting the outlook. This has set a clearer downward trend for the pair as we enter 2026.

The Bank of England and Currency Strategies

The Bank of England’s direction became clearer as UK wage growth remained high, ending 2025 with an annualized rate of 6.5%, much higher than the Eurozone average. This situation has led markets to postpone expectations for any rate cuts from the BoE, providing support for the Pound. Traders should note that options pricing now indicates a more hawkish BoE than expected just two months ago. In the Eurozone, inflation is falling more quickly. The latest flash estimates for December 2025 show a drop to 2.4%. This difference in inflation trends raises the likelihood that the European Central Bank will be the first to cut interest rates in the first half of this year. As a result, selling EUR/GBP rallies has become a popular strategy, with many traders seeing levels above 0.8600 as good shorting opportunities. With a clearer bearish outlook for the pair, implied volatility for EUR/GBP options has been decreasing from last year’s highs. Traders can take advantage of this by selling out-of-the-money call options or creating bear call spreads to collect premium. Look for key support levels near the 2025 low of 0.8500 as potential targets for put options in the upcoming weeks. Create your live VT Markets account and start trading now.

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The Pound Sterling is under pressure against the US Dollar, trading around 1.3420 during the European session. The strength of the Dollar comes ahead of the US Nonfarm Payrolls data for December, which has pushed the US Dollar Index up by 0.17% to about 99.00, a four-week high.

Trading Range and Key Challenges

GBP/USD is expected to move between 1.3400 and 1.3535. While there are some upward risks, major support levels are likely to hold. The pair is weakening for the fourth day in a row, posing a challenge to the 200-day SMA. Gold prices remain high at around $4,500 as risk-off sentiment continues, despite the stronger US Dollar and rising Treasury yields. The market is reacting mixed to the recent US Nonfarm Payrolls release, affecting various currency pairs and commodity prices. Key upcoming events include US Consumer Price Index data and a possible Supreme Court decision on tariffs, which could shift market dynamics. It’s important to do thorough research before making any market moves, given the risks involved in investing. The US Dollar is gaining strength, placing significant pressure on the Pound as it trades near 1.3420. This comes after the December 2025 jobs report revealed that the US added 210,000 jobs, exceeding expectations and leading traders to push back hopes for Federal Reserve rate cuts. According to the CME FedWatch Tool, the likelihood of a rate cut by March has dropped from over 70% to just 40% in the past week.

Market Predictions and Defensive Strategies

We anticipate that the GBP/USD pair will stay in a lower range for the near future, between 1.3400 and 1.3535. Traders might think about selling volatility using option strategies like short strangles on currency futures, expecting the pair to stay within this range. The critical level to watch is the 200-day moving average around 1.3380, which could provide strong support. The key event on the calendar is next Tuesday’s US Consumer Price Index (CPI) report. Following a persistent inflation rate of 3.5% year-over-year in November 2025, another high reading could boost the Dollar and may push the Pound below the important 1.3380 level. Expect increased volatility around this data release. This divergence is further highlighted by the UK’s economic weakness, where inflation dropped to 2.5% in the latest 2025 report. This puts pressure on the Bank of England to cut rates sooner than the Fed, which could hinder the Pound. Long positions in GBP now feel particularly risky. Interestingly, despite the strong Dollar, Gold is surging toward $4,500, indicating fear in the broader market. This reflects a “risk-off” sentiment, where investors are looking for safety. This environment justifies portfolio protection, possibly through VIX call options or long positions in gold futures. The move away from risk is also seen in the crypto market, with institutional demand for Bitcoin falling and the price struggling below $90,000. The overall weakness in speculative assets supports a cautious approach, favoring the Dollar against weaker currencies like the Pound in the upcoming weeks. Create your live VT Markets account and start trading now.

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Canada’s unemployment rate rose to 6.8% in December, higher than the expected 6.6%. This is an increase from 6.5% in November, based on data from Statistics Canada. The employment numbers for the month showed a net gain of 8.2K jobs, which was better than the predicted loss of 5K. Average hourly wages increased by 3.7% compared to last year, down slightly from 4% in November. The participation rate also improved, going up to 65.4% from 65.1%. Despite these mixed employment figures, the market showed little reaction, and the USD/CAD exchange rate remained stable.

Labour Market Expectations

The release of the labour market data came with expectations of job losses, predicting 5K layoffs against 53.6K new hires in November. The Bank of Canada (BoC) may consider cutting interest rates if signs of economic slowdown worsen, even though current rates are at 2.25%. As USD/CAD approaches 1.3871, the bullish trend is supported by the 20-day Exponential Moving Average and a 14-day Relative Strength Index of 60. The currency pair is trading near a key 50% Fibonacci retracement level. Labour market conditions can impact currency values because employment levels drive consumer spending and economic growth. Wage growth, an important measure of inflation, is closely monitored by central banks for policy decisions. Looking back at the employment report from December 2024, we noted the unemployment rate rose to 6.8%, indicating a softening labor market in Canada. This trend persisted into 2025, with the latest jobs report for December 2025 showing unemployment has climbed to 7.2%. This ongoing weakness confirms the slowdown that began last year.

Impact on Interest Rates

The persistent labor market issues have directly influenced the Bank of Canada’s policies. Unlike late 2024 when the BoC maintained its key interest rate at 2.25%, there have since been several rate cuts, reducing the rate to 1.75%. Slowing wage growth, which now stands at an annualized rate of 3.1%, gives the central bank little reason to change this approach. Amid this situation, the USD/CAD exchange rate has surpassed the 1.3900 mark discussed in early 2025 and is now hovering around 1.4150. Given the weak Canadian data and the potential for more dovish sentiment from the Bank of Canada during its January 22 meeting, traders might consider bullish strategies for this pair. Buying call options with a strike price around 1.4200 that expire in February offers a defined-risk way to profit from further Canadian dollar weakness. The market expects a cautious message from the central bank, and implied volatility for USD/CAD options is increasing ahead of the meeting. This scenario suggests that strategies like bull call spreads could be effective, helping traders lower the cost of a bullish position. In the coming weeks, we see the most likely direction for USD/CAD as upward, especially if US economic data performs better than Canada’s. Create your live VT Markets account and start trading now.

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In September, building permits in the US increased by 6.4%, a positive change from the previous month’s drop of -3.7%. This indicates a recovery from earlier negative trends. Gold is gaining attention, currently priced above $4,500, and is on track for a 4% weekly rise after the US Nonfarm Payrolls (NFP) report. Even with a stronger US Dollar, gold continues to find support as the market turns risk-averse.

USD Currencies Movement

The USD/CAD pair is gaining strength due to a robust US Dollar, while the Canadian Dollar is impacted by lower oil prices. The USD/JPY remains close to its one-year highs, as markets adjust their expectations for Federal Reserve interest rate cuts. The GBP/USD has declined and is trading below 1.3400, pressured by the US Dollar. It struggles to maintain crucial support levels amid weak nonfarm payrolls. In the cryptocurrency market, Bitcoin is stable at $90,000, but is below its 50-day EMA, indicating a lack of institutional support. Ethereum is holding steady above $3,000, but is also showing weakness due to ETF outflows. XRP continues to face pressure. With strong labor data from December 2025, the market is significantly lowering the chances of a Federal Reserve rate cut in January. This shift is driving a strong rally in the US Dollar. The CME’s FedWatch Tool now shows less than a 15% chance of a cut this month, compared to nearly 50% only weeks ago.

Economic Trends and Projections

The American economy is proving to be resilient, backing the Fed’s cautious approach. The 6.4% rise in building permits from September 2025 now appears to be a sign of renewed economic activity, rather than an outlier. This contrasts with the slowdown in the housing market seen in early 2025, indicating the economy is strong enough for the Fed to keep rates steady. Gold’s rise above $4,500 per ounce highlights ongoing market fears, especially alongside a strengthening dollar. This unusual behavior suggests persistent geopolitical risks and increased purchasing by central banks, a trend that has intensified throughout 2025. Traders may consider this a hedge against risks outside the control of monetary policy. This situation is putting pressure on currencies like the Pound and the Euro. With GBP/USD below 1.3400 and EUR/USD aiming for 1.1600, bearish positions seem attractive. The upcoming US Consumer Price Index (CPI) report is crucial; another high inflation reading, like the 3.4% in December 2025, would likely support the case for no immediate rate cuts and push these currency pairs lower. The “higher for longer” interest rate outlook is also making things tough for riskier assets. This is evident in the cryptocurrency market, where institutional demand is fading. Bitcoin is finding it hard to stay above $90,000, despite a positive start to the year. Ethereum ETF outflows have exceeded $500 million since late 2025, indicating that investors are shifting away from non-yielding assets to the dollar. Create your live VT Markets account and start trading now.

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In September, housing starts in the United States reached 1.306 million, a small drop from August’s 1.307 million. This change occurs alongside various market activities, such as fluctuations in currency values and shifts in consumer confidence. The USD/CAD exchange rate has increased, supported by a strong US Dollar driven by solid labor data, while the Canadian Dollar faces challenges from oil price changes. At the same time, the USD/JPY remains strong, staying close to yearly highs, as the market watches for potential Federal Reserve interest rate cuts.

Cryptocurrency Market Overview

Gold is trading at about $4,500 per troy ounce, near its yearly highs, as investors seek safety in a volatile market, even with a robust US Dollar and rising Treasury yields. However, cryptocurrencies like Bitcoin and Ethereum are struggling with lower demand. Bitcoin is currently trading below its 50-day EMA, and Ethereum is facing outflows from ETFs. Global events, including US CPI data and geopolitical tensions, are likely to influence the US Dollar in the upcoming week. There’s also a focus on XRP, which is seeing a drop in demand despite a strong start to 2026. The article wraps up with a list of leading brokers for 2026, highlighting their trading advantages and regional focuses. Reflecting on late 2025, the market adjusted its views on Federal Reserve policies following a strong Nonfarm Payrolls report. This shift away from anticipated rate cuts in early 2026 continues to boost the dollar’s strength today. The Dollar Index (DXY) recently reached a multi-month high of 105.50, making it tough to bet against the dollar.

Inflation and Market Reactions

Attention is now on next Tuesday’s Consumer Price Index (CPI) report for clearer guidance on inflation. December’s CPI showed core inflation sticking at 3.9%, pressuring the Fed to maintain higher rates for an extended period. This uncertainty is why the VIX remains elevated, fluctuating above 18, making it a prime opportunity for traders to use options strategies, like strangles, on major currency pairs. The housing market continues to be a crucial indicator. The slight decline in housing starts to 1.306 million in September 2025 appears to be part of a wider trend toward stabilization. Recent S&P Case-Shiller Home Price Index data revealed year-over-year growth slowing to just 4.8%, indicating that high mortgage rates are limiting significant increases. Therefore, anyone considering derivatives linked to homebuilder stocks or real estate ETFs should proceed with caution. Last month, the Pound fell below significant technical levels like the 200-day moving average, and this weakness is expected to continue until the Bank of England adopts a more aggressive approach. Despite the strong dollar, gold’s stability near $4,500 an ounce highlights ongoing geopolitical concerns that should not be overlooked. Traders might explore using gold options as a safeguard against sudden changes in market conditions in the weeks ahead. Create your live VT Markets account and start trading now.

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In September, the United States issued 1.415 million building permits, up from 1.312 million in August. The US dollar has strengthened, affecting other currencies like the Canadian dollar and Japanese yen. The Canadian dollar is under pressure from oil prices, while the yen responds to changes in expectations from the Federal Reserve.

Pound Sterling Performance

The pound sterling fell below 1.3450 after the US released its nonfarm payrolls data. Meanwhile, gold is on the rise, approaching yearly highs of around $4,500 per troy ounce. Bitcoin holds steady at $90,000, but XRP struggles with low demand. Ethereum remains unstable amidst ongoing ETF outflows, although it has stabilized above $3,000. Next week, the US Consumer Price Index (CPI) report may impact the US dollar. This report will come out during ongoing geopolitical changes, which could influence market trends. By 2026, traders have many brokerage choices to suit their needs. Key options include regulated brokers, those with low spreads, and platforms like MT4.

Investment Advice Disclaimer

We do not provide investment advice, and we urge readers to do their own research. The information shared may involve risks, and FXStreet is not responsible for its accuracy or timeliness. Given the strong US dollar, we expect that other major currencies may decline. Last month’s jobs report was robust enough to push back expectations for a rate cut from the Federal Reserve, with futures now showing less than a 30% chance of a cut by March. This indicates that traders might want to consider bearish positions on the Euro and the Pound. The EUR/USD pair is breaking through important support levels, and GBP/USD is testing its 200-day moving average. The gap between the aggressive Fed and the more cautious central banks in Europe is likely to continue to weigh on these pairs. We see potential in buying puts on the Euro, aiming for a drop to the 1.1600 level in the coming weeks. Despite the strength of the dollar, gold is holding strong near $4,500 an ounce, serving as a hedge against geopolitical risks. Uncertainty around a possible US Supreme Court ruling on trade tariffs has made investors anxious, which supports gold prices. Buying call options on gold could provide a useful hedge against sudden market drops. With the crucial US Consumer Price Index (CPI) report arriving next Tuesday, we should brace for increased market volatility. The VIX, which measures expected market volatility, has been low, trading around 14 for the past month, making options cheaper than they were in late 2025. This is a good time to consider strategies that could benefit from significant price movements. The crypto market remains weak as institutional demand seen in late 2025 has decreased. In just the past week, digital asset investment funds experienced over $500 million in net outflows, indicating a widespread retreat from the market. This bearish outlook suggests that shorting futures or buying puts on Bitcoin and Ethereum might be a wise strategy. Create your live VT Markets account and start trading now.

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Nonfarm Payrolls in the United States increased by 50,000 in December, which is below the expected 60,000. November’s increase was revised down to 56,000. The Unemployment Rate fell from 4.6% to 4.4%. However, the Labor Force Participation Rate dropped from 62.5% to 62.4%. Average Hourly Earnings showed annual wage growth rise to 3.8%, up from 3.6%. The nonfarm employment figure for October was significantly lowered, totaling 76,000 fewer jobs in October and November than originally reported. The US Dollar Index dipped slightly but had an overall increase of 0.15%.

Currency Market Performance

In the currency market, the US Dollar had mixed results, performing best against the Canadian Dollar. Analysts expected a job increase of 60,000 in December, with the Unemployment Rate falling to 4.5%. Minor increases in annual wage growth were anticipated, potentially affecting monetary policy. According to ADP, private sector payrolls rose by 41,000 in December, and ISM’s PMI Employment Index increased to 52. These labor market trends and wage data might impact the Federal Reserve’s decisions on interest rates, with a 45% chance of a rate cut in March. The December jobs report for 2025 was weaker than expected, with significant downward adjustments for the past two months. This suggests that the job market is slowing more quickly than many had thought. This slowdown reinforces the idea that the Federal Reserve may consider cutting interest rates sooner. After this data release, the market’s expectation for a March rate cut has risen significantly. The CME FedWatch Tool now suggests over a 60% chance of a rate cut in March, up from about 45% just a day earlier. Traders should prepare for lower interest rates by exploring options on interest rate futures.

Implications for the Federal Reserve

The situation is complicated by wage growth, which accelerated to 3.8% annually. This, along with last month’s core CPI data showing stubborn inflation at 3.5%, poses a challenge for the Fed. The tension between a weakening job market and ongoing inflation indicates we should brace for more market fluctuations, making VIX call options a potential hedge for the near future. The US Dollar has already weakened following this news, and this trend may continue as expectations for rate cuts grow stronger. After a strong dollar performance through much of 2025, this jobs report could shift the trend. We recommend looking into buying put options on the dollar index or call options on pairs like the EUR/USD, especially around the March Fed meeting. For equity markets, this situation is tricky. The possibility of rate cuts contrasts with the reality of a slowing economy. We saw a similar scenario in 2023, where the markets reacted nervously to signs of economic decline. Consider using cautious bullish strategies, like buying call spreads on the S&P 500, to take advantage of any potential upside from a dovish Fed while managing risk from a possible slowdown. Create your live VT Markets account and start trading now.

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WTI oil prices jumped 4% on Friday before settling down as markets rethink US oversight of Venezuelan oil due to military actions in Caracas. WTI is now trading around $58.00, raising concerns about the possible increase in Venezuela’s oil supply, which could lead to oversupply in the market.

Investment in Venezuelan Oil

US President Donald Trump proposed a $100 billion investment to improve Venezuela’s oil infrastructure. Technical indicators show a short-term boost for WTI, with prices above the 21-day Simple Moving Average and a Relative Strength Index over 50. While there have been short-term gains, the long-term outlook for the market is still not strong. The 50-day Simple Moving Average acts as resistance at $58.34. If this level is broken, there could be further price gains, while the 21-day Simple Moving Average offers support around $57.24. WTI oil prices depend on supply and demand, influenced by geopolitical issues, OPEC decisions, and the value of the US Dollar. Inventory reports, like those from the API and EIA, also affect prices by changing perceptions of demand. OPEC’s production limits impact prices, with adjustments to capacity affecting market supply. These factors contribute to frequent changes in WTI oil prices. As we start 2026, the market dynamics for WTI crude are quite different from 2025. Last year, concerns about Venezuela’s oversupply kept prices around $58. This year, with WTI near $78, the focus has shifted to tight supply in light of renewed tensions in the Strait of Hormuz.

Recent EIA Report

This positive sentiment is backed by recent data. The Energy Information Administration (EIA) report indicated an unexpected inventory drop of 3.1 million barrels, while analysts predicted a small increase. This suggests stronger-than-expected consumer and industrial demand, supporting current price levels. Technically, staying above the 21-day Simple Moving Average, currently near $76.50, is crucial for short-term momentum. A steady breakthrough above the $80 mark could attract more buying in the coming weeks. Traders should keep a close eye on these levels for signs of a continued upward trend or a possible reversal. However, we also need to consider supply factors. US crude production remains high, around a record 13.5 million barrels per day. This large output could limit any significant price increases, keeping the market volatile. In response to global conditions, OPEC+ announced last week that it would maintain its production cuts through the end of the first quarter. This decision reflects the group’s desire for price stability rather than chasing market share at this time. This strategy should help protect derivative traders from major losses, though any unexpected policy changes could still present risks. Create your live VT Markets account and start trading now.

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