Insights 
VT 
Us Inflation And Policy Expectations
In September, the annual inflation in the United States rose to 3%, up from 2.9% in August, according to the US Bureau of Labor Statistics. The Consumer Price Index (CPI) saw a monthly increase of 0.3%, while the core CPI, which excludes food and energy, rose by 0.2%.
The US Dollar experienced some pressure due to inflation data that was below expectations; the USD Index dropped by 0.12% to 98.80. According to market data, the US Dollar weakened against major currencies, especially the New Zealand Dollar.
The US Bureau of Labor Statistics had anticipated a CPI increase of 3.1% for September, which could affect monetary policy. The Federal Reserve is expected to reduce the policy rate by 25 basis points soon.
High inflation typically leads to increased currency value as central banks might raise interest rates to control it. This attracts more foreign investment due to higher returns. Conversely, low inflation can lower the currency value, attracting fewer investments.
Gold, often considered a safe haven, reacts inversely to inflation. High inflation usually results in higher interest rates, reducing gold’s appeal, while low inflation can increase its attractiveness due to lower opportunity costs.
Future Market Expectations
The latest September 2025 inflation report showed that the Consumer Price Index (CPI) rose to 2.8% year-over-year, which was slightly hotter than the 2.6% we were expecting. This stubborn inflation, combined with a strong jobs report from early October that showed 210,000 new payrolls, suggests the Federal Reserve will stick to its plan of keeping interest rates high. We should not expect any easing in monetary policy soon.
Looking back, we can see a very different market reaction to similar data in the past. For example, back in the fall of 2019, an annual inflation rate of 3% was seen alongside strong market expectations for the Fed to actually *cut* rates. Today, with inflation just under that level, the conversation is entirely focused on how long the Fed will keep rates elevated, showing how much the economic landscape has shifted.
For us, this means we should prepare for more market volatility in the coming weeks as traders digest the reality of “higher for longer” rates. The CBOE Volatility Index (VIX) has already started to creep up from its recent lows, now trading around 18, which tells us that uncertainty is building. We should consider strategies that benefit from this choppiness, such as buying straddles on major equity indices.
This environment makes a strong case for the US Dollar to continue its run. With the Federal Reserve holding firm, while other central banks like the European Central Bank show signs of pausing due to weaker economic data, the dollar has a clear advantage. Using currency derivatives to bet on a stronger dollar, particularly against the Euro, seems like a solid position to hold.
The market has almost completely priced out any possibility of a rate cut before the middle of 2026. We can see this reflected in the Secured Overnight Financing Rate (SOFR) futures, which show short-term rates staying firm for at least the next two quarters. Therefore, any derivative positions that bet on short-term interest rates remaining at or near their current levels should perform well.
