Mexico’s inflation rate for the past year was 3.76% in September, slightly below the expected 3.79%. This small difference shows that consumer prices have not risen as much as predicted. The USD/JPY exchange rate stabilized around 153.00. The Japanese yen has struggled for six consecutive days, mainly due to broader market trends. This performance differs from the continued strength of the US Dollar, which influences currency pairs worldwide.

The Australian Dollar Weakens

The Australian Dollar lost value as the US Dollar recovered. Eyes are now on an upcoming speech from the RBA Governor. Similarly, the Pound Sterling fell to a two-month low against the US Dollar, highlighting the latter’s strength. Gold prices dropped to $3,950 per troy ounce due to rising demand for the US Dollar. Moreover, cryptocurrencies like Bitcoin and Ethereum gave up some gains as investors took profits and adopted a more cautious approach. US tariffs remain a significant tool of foreign policy and are consistently enforced regardless of immediate news. Additionally, Zcash, a cryptocurrency, saw a surge in demand for privacy protocols. These trends reflect broader economic and policy changes impacting global markets. With Mexico’s inflation at 3.76% for September, slightly lower than expected, there’s a clear signal for more interest rate cuts from Banxico. The central bank has hinted at this possibility, and since rates have already dropped from an 11% peak in 2024, this trend is likely to continue. This easing makes the peso less attractive for investors.

The Dominant Theme in the Market

The standout theme in the market is the strong US dollar, which is leading to a decline in other major currencies like the Euro and the Pound Sterling. This trend is backed by solid economic data, including last week’s job report showing the US added over 200,000 jobs. This reinforces the Federal Reserve’s cautious approach and its reluctance to cut rates, creating a clear difference in monetary policy. In light of these factors, we should explore derivatives that benefit from a rising USD/MXN exchange rate, such as buying call options or long futures contracts. This approach takes into account the contrasting directions of the two central banks, with Banxico easing policies while the Fed maintains a firm stance. Historically, when the interest rate gap between the two countries narrows, the peso tends to weaken. We are currently in a risk-off environment, which is why assets like Gold and Bitcoin have retreated from their recent highs. A strong dollar makes commodities priced in it more expensive, and high US interest rates reduce the appeal of non-yielding assets. Hence, we should remain cautious and consider hedging or decreasing exposure to riskier assets in the weeks ahead. Create your live VT Markets account and start trading now.

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