The US core Personal Consumption Expenditures (PCE) price index rose 3% year on year in December. This was above the expected 2.9%.<\/p>\n
Core PCE excludes food and energy prices. It is a key measure of inflation in the United States.<\/p>\n
We saw that hotter-than-expected Core PCE data from December 2025 at 3.0%, which set a cautious tone for the new year. This view was reinforced when January’s jobs report showed a surprising gain of 250,000, well above forecasts. Now, with recent CPI data also holding firm, the market is repricing the odds of a March rate cut downwards.<\/p>\n
We are now seeing the market price out the probability of a rate cut in the first quarter, with the CME FedWatch Tool showing less than a 20% chance for March. This suggests positioning for a “higher for longer” rate environment by selling near-term interest rate futures could still be profitable. Look for continued volatility in options tied to Secured Overnight Financing Rate (SOFR) futures as the market digests this new reality.<\/p>\n
In this environment, we are increasing our focus on protective strategies for equity portfolios. The CBOE Volatility Index (VIX) has climbed from its December lows, recently touching 17, and we anticipate it may test higher levels. We are reminded of the market action in 2023, when similar inflation fears led to profitable opportunities in buying put options on major indices for downside protection.<\/p>\n
The renewed strength of the U.S. dollar is a direct result of these shifting rate expectations. The Dollar Index (DXY) has broken through key resistance and is now trading above 105, a level we have not seen since last autumn. In the coming weeks, we see value in using options to express a bullish view on the dollar against currencies with more dovish central banks.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" US core PCE inflation rose 3% year-on-year in December, topping forecasts of 2.9%, excluding food, energy.<\/p>\n","protected":false},"author":62,"featured_media":16967,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-42431","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\n\t\t