In November, annual core PCE inflation in the US increased to 2.8% from October’s 2.7%. The monthly rise in the PCE Price Index was 0.2%, as confirmed by the US Bureau of Economic Analysis.
This core PCE Price Index is the preferred inflation measure of the Federal Reserve and met market expectations. Associated data pointed to a 0.3% rise in Personal Income and a 0.5% increase in Personal Spending for the month.
Bearish Pressure On The Us Dollar
Following this data release, the US Dollar faced bearish pressure, with the USD Index down by 0.25% at 98.55. Core inflation levels form a focus for economists and central banks, aiming to maintain around 2%.
Inflation’s effect on a country’s currency is notable, as higher inflation often strengthens a currency due to increased interest rates attracting global capital. Gold, once a refuge during high inflation, is now less attractive when interest rates rise, as it increases holding costs compared to interest-bearing investments. Conversely, lower inflation can enhance gold’s appeal by reducing interest rates, making it an attractive investment once more.
We recall that the rise in core PCE to 2.8% back in November 2024 marked a period of stubborn inflation. This stickiness continued through most of 2025, keeping the Federal Reserve from cutting interest rates as many had anticipated. That persistent inflation shaped the trading environment for the entire year.
Shifting Market Landscape In 2026
However, the landscape is now shifting as we begin 2026. The most recent report for December 2025 showed a significant cooling, with Core CPI dropping to 2.4%, well below forecasts. This, combined with a weaker-than-expected jobs report showing only 150,000 new payrolls, suggests the economy is finally slowing.
This sharp turn has increased bets on Fed rate cuts within the next two quarters, a major reversal from the “higher for longer” stance of 2025. We’re seeing this reflected in the derivatives market, with the CME FedWatch Tool now indicating a more than 70% probability of a rate cut by June 2026. Traders should therefore look at options on SOFR futures to position for increased rate volatility.
A weaker economic outlook and the prospect of lower interest rates are putting pressure on the US Dollar. After trading in a tight range for much of late 2025, the DXY index has recently broken below the key 97.50 support level. Options strategies that benefit from a declining dollar, such as buying puts on the USD or calls on currencies like the Euro or Yen, are now more attractive.
The conflict between last year’s persistent inflation and the new signs of a slowdown is creating significant market uncertainty. We see the VIX, which stayed relatively low through the end of 2025, climbing back above 18 this month. This suggests traders are pricing in more turbulence, making long volatility positions through VIX futures or options a viable hedge in the coming weeks.
