In August, Mexico’s retail sales saw an increase, reaching 0.6%, surpassing the expected 0.2%. This positive performance in retail sales reflects favourable market conditions during this period.

The British Pound fell against the US Dollar as UK inflation figures suggested potential dovish moves by the Bank of England. In contrast, AUD/USD benefited from strong commodity performance, while USD/CAD remained steady with oil price influences balancing a stronger US Dollar.

EUR and USD Market Influence

EUR/USD maintained slight gains above 1.1600, with the US Dollar’s momentum stalling and affecting general market sentiment. Meanwhile, the GBP/USD dropped to 1.3320 as speculation about a Bank of England rate cut grew, alongside the strengthening of the US Dollar.

Gold was trading around $4,150 per troy ounce, facing a consolidative phase amidst cautious market anticipation related to the US Consumer Price Index data. Bitcoin approached a resistance level of $110,000, evidencing renewed interest from retail traders, while Ethereum and XRP also experienced upward movements, albeit influenced by varying market dynamics.

Japan’s Yen stabilised following Sanae Takaichi’s appointment as Prime Minister, amidst considerations about Japan’s fiscal and monetary policy alignment. In cryptocurrency markets, Aster’s price rose slightly to over $1.00 amid general positive market sentiment led by Bitcoin and Ethereum gains.

The August retail sales beat we saw in Mexico, coming in at 0.6%, reinforces the theme of a resilient consumer. More recent data from September shows core inflation remains sticky at 4.4%, suggesting Banxico will keep interest rates elevated for longer. We should consider using derivatives to express a bullish view on the Mexican Peso, particularly against currencies with dovish central banks like the Japanese Yen.

Monetary Policies and Market Strategies

There is a growing expectation for a dovish Federal Reserve, but we must be cautious as the latest US inflation data from last week showed core CPI at a stubborn 3.8%. This persistence complicates the case for rate cuts and suggests the US Dollar could rally if upcoming employment and inflation numbers remain strong. Volatility options on the Dollar Index (DXY) could be a good way to position for a potential surprise.

We see a clear path for continued weakness in the British Pound, a view supported by fundamentals. With UK inflation having cooled to 2.5% in the latest reading, money markets are now pricing in a greater than 60% probability of a Bank of England rate cut by March of next year. We should look at buying put options on the GBP/USD pair to capitalize on this expected decline.

The strength in commodities is a major driver that we should be following, directly supporting the Australian and Canadian dollars. West Texas Intermediate crude oil has broken above $95 per barrel, and this trend continues to provide a tailwind for the loonie. Selling EUR/CAD or buying call options on AUD/USD are attractive strategies to play this divergence.

Gold is stuck in a holding pattern around $4,150, which is not surprising given the market’s focus on the next US inflation print. We saw a similar period of consolidation in late 2024 before a sharp breakout, so we should prepare for a spike in volatility. Traders could implement straddles to profit from a large price move in either direction once the data is released.

The risk-on mood is unmistakable in crypto, with Bitcoin now testing the $110,000 resistance level. Open interest in Bitcoin futures has climbed over 20% in the past 30 days, showing that significant new money is flowing into the asset class. This suggests that buying call options on both Bitcoin and Ethereum could be profitable as they attempt to break out to new highs.

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