Insights 
VT 
In October, the University of Michigan’s five-year consumer inflation expectation in the United States was recorded at 3.9%, surpassing the forecast of 3.7%. This data comes amidst various economic developments, including concerns about potential interest rate cuts by the Federal Reserve.
Financial markets saw several movements, with gold rebounding and the Dow Jones Industrial Average reaching new highs. The British Pound exhibited a decline against the US Dollar, weakening below the 1.3300 threshold. Meanwhile, the cryptocurrency market experienced an uptick, with Bitcoin trading above $111,000 and altcoins like Ethereum and Ripple showing bullish trends.
Banking Embraces Cryptocurrency
JPMorgan Chase has announced intentions to offer Bitcoin and Ethereum-backed loans to institutional clients by the end of the year. This decision reflects a shift in the bank’s policies towards embracing cryptocurrency assets. Despite the ongoing government shutdown in the US, anticipation remains that the Federal Reserve will opt for a rate cut soon.
The University of Michigan’s 5-year inflation expectation just came in hot at 3.9%, above the 3.7% forecast for October 2025. This surprise data suggests that consumers believe inflation will remain sticky for years to come. This challenges the recent market narrative that has been banking on softer price pressures and imminent rate cuts.
This makes the Federal Reserve’s next decision much more difficult. We were previously seeing widespread expectation for a rate cut, but this new data gives the Fed a reason to hold firm or even sound more hawkish. CME FedWatch Tool probabilities have already shifted, with the implied chance of a near-term rate cut dropping from over 70% just last week to around 45% this morning.
Market Volatility and Currency Effects
Traders should consider buying protection against a spike in market volatility. The VIX index has already ticked up to 17, a noticeable jump from the calm we have seen in recent weeks. Looking back at the sharp market swings during the high inflation we saw in 2023 and 2024, we know that unexpected inflation data can quickly unsettle markets.
In the currency markets, this news strengthens the US Dollar. A more cautious Fed means US interest rates could stay higher for longer, pushing pairs like EUR/USD back down from the 1.1650 level. Likewise, the GBP/USD has broken below 1.3300 as renewed bets on Bank of England rate cuts appear more pronounced against a hesitant Fed.
For commodities, the outlook is now more mixed. Gold had previously rallied to over $4,100 on rate cut bets, but a stronger dollar and the potential for higher rates create significant headwinds. Derivative traders might look at using options to hedge long gold positions against a potential downturn.
The crypto market appears somewhat disconnected, with Bitcoin holding above $111,000 amid news of growing institutional adoption. However, a significant risk-off move in the broader markets, triggered by a hawkish Fed surprise, could still spill over and impact digital assets. The stable retail demand seen so far may not be enough to absorb a major shift in institutional sentiment.
