In October, economic activity in the US manufacturing sector continued to decline. The ISM Manufacturing PMI dropped to 48.7, down from 49.1 in September, missing the expected 49.5. The report highlighted a slight improvement in the Employment Index, which rose to 46 from 45.3. The New Orders Index also improved, increasing to 49.4 from 48.9. Meanwhile, the Prices Paid Index, which reflects input inflation, fell to 58 from 61.9.

Impact On The US Dollar Index

After the ISM Manufacturing PMI data was released, the US Dollar Index saw modest daily gains. At that time, it increased by 0.15%, reaching 99.85. The latest manufacturing data shows a clear slowdown, but a key point to note is the significant drop in the Prices Paid Index. This marks the fastest decline in input inflation we’ve seen in over a year, signaling that the Federal Reserve’s policy is effective. We should prepare for the market to start expecting a more relaxed stance from the Fed. This outlook supports long positions in interest rate derivatives. We recommend buying March 2026 futures on 10-year Treasury notes (ZN) or call options on bond ETFs like TLT. The CME FedWatch Tool now indicates nearly a 60% chance of a rate cut by the end of the first quarter of 2026, up from 40% just last week.

Strategies For Equity Markets

In the equity markets, this creates a mixed narrative of slowing growth versus potential lower rates. We see this as a positive for rate-sensitive technology and growth stocks, which faced challenges during the tightening cycle from 2022-2024. We suggest purchasing at-the-money call options on the Nasdaq 100 (QQQ) with early 2026 expirations, betting that lower rate expectations will offset concerns about manufacturing slowing down. The US Dollar’s initial strength provides us with an opportunity. A dovish Fed pivot is likely to weaken the dollar, and we think the market is waiting for reassurance from upcoming jobs or CPI data before selling. We are considering buying puts on the Invesco DB US Dollar Index Bullish Fund (UUP) or call options on the Euro to prepare for this anticipated decline. Lastly, this conflicting economic data—slowing growth along with easing inflation fears—often leads to increased market uncertainty. The VIX is currently around 17, which is relatively low compared to the spikes above 30 seen during the economic turmoil of 2022. We believe it’s wise to buy VIX call options expiring in December as a hedge against possible spikes in volatility while the market processes these mixed signals. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now