The US Dollar remains broadly strong following statements by Fed Chair Powell, which reduced expectations for an imminent rate cut. Markets are now predicting a 66% chance of a December rate cut, down from over 90% earlier. Despite cooler risk sentiment, a 25bps cut is anticipated next month due to tight policy pressures on employment and eased inflation risks.
US rate expectations have adjusted upward after Powell’s comments, keeping the USD firm against major currencies. There’s a 66% implied probability of a December 10 meeting rate cut. The diminished rate cut expectations have also slowed the rally in risk assets. The Fed’s restrictive policy could exacerbate employment issues, while inflation risks remain low.
Government Shutdown Continues
The US government shutdown persists as no resolution is in sight with parties still at an impasse. Senate meetings are scheduled for November 3. Today’s Fed speakers include Dallas Fed President Lorie Logan, Fed Presidents Beth Hammack, and Raphael Bostic. Upcoming US private-sector data will provide insight into employment and inflation, but USD is unlikely to break the current range since June.
The US Dollar is holding firm today, October 31, 2025, after Federal Reserve comments reduced the market’s certainty about a near-term interest rate cut. The odds of a 25 basis point cut at the December 10th meeting have dropped to around 66%, creating a clear disagreement in the market. This tension between market pricing and the economic reality is where opportunities can be found.
We believe the Fed will still cut rates in December because restrictive policy is starting to strain the job market and inflation is no longer a major threat. This view is supported by the latest Bureau of Labor Statistics report, which showed job growth slowing to a modest 98,000 in September, missing consensus forecasts. The most recent Consumer Price Index (CPI) data also showed inflation moderating to an annualized 2.7%, well below the cycle highs we saw in prior years.
Trading Strategies and Market Volatility
Traders should consider options strategies that would profit if the market reprices to align with our view of an imminent rate cut. This could involve buying December call options on Secured Overnight Financing Rate (SOFR) futures, which gain value as expectations for lower rates increase. Given the uncertainty, the cost of these options is currently elevated but may offer significant upside if a cut becomes more certain.
The ongoing US government shutdown adds another layer of volatility, which could push risk assets lower in the near term. We saw a similar dynamic during the 2018-2019 shutdown, when the VIX index, a measure of expected market volatility, jumped over 80% in just a few weeks. Traders could use VIX call options to hedge against or speculate on a sharp increase in market turbulence ahead of the November 3rd deadline for senators to meet.
For foreign exchange, if we are correct and the Fed does signal a cut, the dollar’s recent strength will likely reverse. This suggests positioning for dollar weakness against major currencies could be a prudent strategy. Purchasing put options on the U.S. Dollar Index (DXY) or call options on pairs like the EUR/USD for December expiry would align with this outlook.
All eyes will be on next week’s employment data, including the JOLTS and ADP reports, to confirm if the labor market is weakening as we suspect. The comments today from Fed Presidents Logan and Hammack could also cause short-term market shifts. Any data showing a sharper-than-expected economic slowdown will likely accelerate the market’s pricing of a December rate cut and validate these trading positions.
