Following the US CPI report, markets are experiencing a period of calm. Ethereum, in the crypto space, has surged above $4,600 to reach four-year highs. Other asset classes show minimal changes.
In the Forex market, major currencies remain stable after a recent drop in the dollar. Traders expect a 25 basis points rate cut by September, with around 60 basis points of cuts anticipated by year-end. Dollar pairs are displaying limited movement within narrow ranges.
Subdued Equities Market
Equities are relatively quiet, with S&P 500 futures remaining flat after hitting record highs on Wall Street. Tech stocks maintain their strength, supported by the ongoing AI boom. The response to the CPI data reflects a subdued market atmosphere.
The CPI report indicates core monthly inflation at 0.322%, aligning with forecasts but marking the highest since January. Core annual inflation is slightly above estimates at 3.059%, almost reaching a rounded 3.1%. Core goods inflation rose by a modest 0.21% month-on-month, nearly unchanged from June.
Median core goods inflation across 56 items decreased to 0.28% m/m from June’s 0.44% m/m. Analysts predict a stronger increase in autumn, but for now, inflation fears for the Fed are delayed. Fed reactions vary, with mixed comments from policymakers on future rate cuts and tariff impacts.
After yesterday’s US inflation report on August 12, 2025, markets are taking a breath. The initial burst of activity has faded, and we’ve seen volatility, measured by the VIX, settle back down into the low 13s. This suggests traders have digested the news and are now waiting for the next major catalyst.
Interest Rate Market Outlook
For interest rate traders, the path seems clear for now as a September rate cut is almost a certainty. The CME FedWatch Tool shows markets are pricing in a greater than 90% chance of a 25 basis point cut next month. This high level of certainty means implied volatility on rate options will likely cheapen, making it a good time to hedge against any surprises later in the year.
In the stock market, the AI-driven rally continues to push the S&P 500 to new records, with the index clearing the 6,500 level. This creates a split market, with tech thriving while other sectors lag due to concerns over future inflation and tariffs. This divergence supports strategies like pair trades, buying outperforming tech stocks while selling underperforming industrial ones.
The big worry about tariffs has been kicked down the road for another month, as the July inflation numbers showed little impact. We saw a similar pattern back in the summer of 2023, where markets traded sideways in low volume before volatility picked up in the autumn. It makes sense to prepare for a quiet few weeks, but expect things to get lively as we head into September and October.
The US dollar fell after the inflation data but has now stabilized, leaving major currency pairs in tight ranges. This low-volatility environment makes it cheaper to buy longer-term options, such as straddles or strangles, on pairs like EUR/USD or USD/JPY. These positions would profit if the current calm is broken by a significant move in either direction this fall.
The main exception to this quiet is in crypto, where Ethereum has surged to a four-year high above $4,600, a level not seen since the 2021 bull run. This move appears driven by factors unique to the crypto space, separate from the wider economic picture. It’s a reminder for us to treat digital assets as their own ecosystem, with volatility driven by its own narratives.
