In November, the United States Core Personal Consumption Expenditures Price Index showed an increase of 0.2% month-over-month. This meets market expectations, with the core PCE inflation reaching 2.8% that month.
The Euro edged higher against the Dollar due to a softer US data, and fewer trade tensions between the US and EU, resulting in increased risk appetite. The GBP/USD also rose to near two-week highs as the easing of trade de-escalation supported a more favourable outlook.
Gold and Cryptocurrency Market Trends
Gold has continued its upward trend, nearing record highs at $4,880 per troy ounce, as the US Dollar weakened. Bitcoin, Ethereum, and XRP saw slight gains amidst oscillating crypto market conditions, with XRP defending $1.90 as a short-term support level.
Donald Trump’s reversal on NATO tariffs signals a shift towards de-escalation, which initially seemed to exacerbate tensions. The ETF inflow has positively impacted XRP despite ongoing retail caution, indicating shifts in market dynamics.
Back in November 2025, we saw in-line inflation data at 2.8% create a weaker dollar and a rally in risk assets. However, the landscape has changed as we enter late January 2026. The most recent Core PCE data for December, released last week, showed a slight uptick to 2.9%, suggesting that inflation remains more stubborn than previously hoped.
Impact on Federal Reserve Rate Expectations
This persistent inflation is forcing a major repricing of Federal Reserve interest rate expectations. According to the latest data from the CME FedWatch tool, markets are now pricing in less than a 40% chance of a rate cut by March, a sharp drop from over 70% just one month ago. This shift implies the Fed will remain cautious for longer than we anticipated at the end of last year.
Consequently, the dollar weakness we enjoyed in late 2025 is reversing, with the DXY index climbing over 1.5% in the last two weeks alone. We should anticipate continued pressure on pairs like EUR/USD and GBP/USD, which are now trading well below the highs seen in November. Options traders could consider buying puts on these currencies to hedge against further dollar strength.
The outlook for Gold has also shifted, pulling back from the $4,900 levels targeted back in November. Higher-for-longer interest rates increase the opportunity cost of holding non-yielding assets like gold, which has retreated to the $4,750 range. Look for volatility to remain high as the market digests the new rate path.
Adding to the uncertainty, the trade de-escalation we saw in late 2025 appears to be fading. Renewed headlines about US-EU friction over digital services taxes are reintroducing volatility. Traders should use derivatives to prepare for potential swings related to any new tariff announcements.
