Mortgage Applications Surge
Meanwhile, the EUR/USD pair remained above 1.1700, with the GBP/USD surpassing 1.3550 for the first time since late July. The improvement in risk sentiment made it challenging for the US Dollar to find demand midweek.
Gold prices hovered above $3,350, with limited gains despite expectations of a dovish Federal Reserve policy. In the realm of cryptocurrencies, AI tokens witnessed growth, with Bittensor, Near Protocol, and Render leading gains.
The Bank of England adjusted interest rates by reducing them by 25 basis points to 4%. This move comes amid concerns about persistent inflation, despite policy hints indicating the end of easing.
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We see the impressive 10.9% jump in mortgage applications as a clear sign of renewed strength in the US housing market, not seen since the turbulence of 2024. This data, combined with the recent July consumer price index coming in slightly cooler than expected at 2.8%, reinforces our view that the Federal Reserve will maintain a dovish stance. For traders, this points to continued US dollar weakness in the coming weeks.
Currency and Commodity Outlook
Given the dollar’s softness, we are looking for further upside in the EUR/USD and GBP/USD pairs. The Bank of England’s recent rate cut to 4% was fully anticipated by the market, which is why sterling actually strengthened. This move, along with surprisingly resilient UK services data from July, makes us comfortable holding a bullish view on these currencies through call options or futures.
Gold’s behavior above $3,350 is telling; it’s a massive increase from the $2,300 levels we saw just last year in 2024, driven by sustained central bank buying. However, the price stalling now, even with a favorable Fed outlook, suggests the rally might be losing steam. We believe it is prudent to consider hedging long positions with put options or even selling some out-of-the-money calls.
The significant gains in AI-focused cryptocurrencies like Bittensor, Near Protocol, and Render show that specific narratives are driving the digital asset space. This trend continues the momentum from the sector’s breakout in late 2024. Due to the extreme volatility, we are approaching this with defined-risk strategies, such as buying call spreads to limit our initial cost.
