Insights 
VT 
Mexico’s 12-month inflation rate was recorded at 3.76% in September, falling short of the anticipated 3.79%. This slight difference indicates a lower-than-expected rise in consumer prices over the period.
USD/JPY steadied around 153.00 as the yen suffered a six-day losing streak, impacted by broader market trends. The Japanese yen’s performance contrasts with the US Dollar’s ongoing strength, affecting currency pairs globally.
The Australian Dollar Weakens
The Australian Dollar weakened amidst the US Dollar’s recovery, with attention turning to an upcoming speech by the RBA Governor. Similarly, the Pound Sterling dropped to a two-month low against the US Dollar, reflecting the latter’s momentum.
Gold prices fell to $3,950 per troy ounce due to increasing demand for the US Dollar. Meanwhile, cryptocurrencies like Bitcoin and Ethereum retraced gains, influenced by profit-taking and a general risk-off sentiment.
US tariffs remain a key foreign policy tool, consistently enforced beyond immediate news cycles. Additionally, the cryptocurrency Zcash experienced a rally as demand for privacy protocols increased. These developments reflect wider economic and policy trends affecting global markets.
With Mexican inflation for September coming in at 3.76%, slightly cooler than anticipated, we see a clear path for more interest rate cuts from Banxico. The central bank has already been signaling this move, and with rates having been cut from their 11% peak seen back in 2024, the trend is likely to continue. This continued easing makes holding the peso less attractive.
The Dominant Theme in the Market
The dominant theme in the market is the powerful US dollar, which is causing weakness across other major currencies like the Euro and the Pound Sterling. This momentum is supported by solid economic data, like last week’s September jobs report which showed the US economy adding over 200,000 jobs, reinforcing the Federal Reserve’s cautious stance on cutting its own rates. This creates a clear divergence in monetary policy that we can act on.
Given these dynamics, we should look at derivatives that will profit from a rising USD/MXN exchange rate, such as buying call options or long futures contracts. This strategy is based on the opposing directions of the two central banks, with Banxico easing policy while the Fed remains firm. Historically, a shrinking interest rate difference between the two countries has often led to peso weakness.
We are operating in a risk-off environment, which is why assets like Gold and Bitcoin are retreating from their recent highs. The strong dollar makes commodities priced in it more expensive, and high US interest rates make holding non-yielding assets less appealing. This suggests we should remain cautious and consider hedging or reducing exposure to riskier parts of the market in the coming weeks.
