Insights 
VT 
The Michigan Consumer Sentiment Index in the United States registered a reading of 53.6 in October. This figure came in below the predicted value of 55.
Gold experienced a rebound after softer US CPI data reinforced bets for a Federal Reserve rate cut. The AUD/USD pair held steady amid mixed US data that kept traders cautious.
Dow Jones Industrial Average Peaking
The Dow Jones Industrial Average reached a new peak following US CPI inflation data. This bolstered expectations for a rate cut by the Federal Reserve.
The EUR/GBP currency pair climbed to a four-week high as bets on a dovish approach by the Bank of England offset strong UK data. Meanwhile, the EUR/USD stabilised just above 1.1600, receding from earlier highs due to a recovery in the US Dollar.
JPMorgan plans to offer Bitcoin and Ethereum-backed loans to institutional clients by the year’s end. This is viewed as a shift in the bank’s policy towards cryptocurrency.
FXStreet provides information which includes forward-looking statements, implying risks and uncertainties. These insights are intended for informational purposes and do not represent recommendations for buying or selling assets.
Economic Trends and Rate Expectations
The recent Michigan Consumer Sentiment reading of 53.6, which missed forecasts, confirms the trend of economic softening we have been tracking. This is not an isolated event; it follows softer-than-expected CPI data from earlier in the month. For us, this solidifies the view that the Federal Reserve will be forced to cut rates sooner rather than later.
Despite equities reaching new highs on the prospect of cheaper money, we see a significant risk of a reversal if the Fed does not meet these dovish expectations. The CBOE Volatility Index (VIX) has recently dipped to 14.2, a level we last saw back in early 2024 before the spring correction, making long volatility positions via VIX calls look attractive. This is a prudent hedge against any hawkish surprise from policymakers in the coming weeks.
We believe the most direct play is in the interest rate markets. The CME FedWatch Tool now shows the market is pricing in an 85% probability of a 25-basis-point cut at the December FOMC meeting, up from just 60% a month ago. We should consider adding to positions in Fed Fund futures or call options on long-duration Treasury ETFs to capitalize on this growing certainty.
In currency markets, the weaker consumer data adds downside pressure to the US Dollar. The Dollar Index (DXY) has been trading in a tight range between 101.50 and 103.00 for the past month, suggesting a significant move is overdue. Buying options straddles on major pairs like the EUR/USD allows us to profit from the breakout in volatility we expect around the next Fed announcement, regardless of the direction.
The combination of economic uncertainty and falling rate expectations is highly supportive for gold. We saw a similar setup in the run-up to the 2020 easing cycle, where gold call options provided significant leverage as the Fed signaled its dovish stance. With gold already reclaiming the $4,100 level, we see further upside and view call spreads as an efficient way to position for a move toward yearly highs.
