The US Producer Price Index (PPI) excluding food and energy rose to 3.3% in December, exceeding the expected 2.9%. This suggests growing inflationary pressures, potentially affecting monetary policy and interest rate expectations.
EUR/USD has fallen below 1.1900 as the US Dollar strengthens following Kevin Warsh’s nomination as Fed chair and higher-than-expected US Producer Prices. GBP/USD is also under selling pressure, threatening the 1.3700 level as the USD rebounds.
Market Movements
Gold’s value fluctuates, climbing back above $5,000 amid profit-taking and a stronger US Dollar. Meanwhile, Stellar has hit a three-month low, trading below $0.20, driven by bearish sentiment and weakening momentum indicators.
Microsoft experienced a market loss of $400 billion following a sell-off, marking the second-highest drop on record. In cryptocurrency markets, Bitcoin, Ethereum, and Ripple suffered corrections, losing 6%, 3%, and 5% weekly, respectively. Bitcoin approaches the November lows at $80,000, while Ethereum drops below $2,800.
The higher-than-expected producer price data from December 2025 confirms our view that inflation is not cooling as quickly as many had hoped. Combined with the nomination of Kevin Warsh, who is widely seen as favoring tighter monetary policy, the Federal Reserve’s stance is likely to become more aggressive. This new reality is already fueling a significant rally in the US Dollar.
Market Trends and Expectations
We should anticipate that the market will continue to price out expected rate cuts for 2026. The CME FedWatch Tool shows the probability of a rate cut by June has collapsed from over 70% to below 25% in just a few weeks. Derivative strategies should now favor higher rates, such as shorting Treasury note futures or buying put options on bond ETFs.
The risk-off sentiment, highlighted by the massive Microsoft sell-off, is likely to persist and broaden. The CBOE Volatility Index (VIX) has surged over 30% this month to trade above 20, signaling rising fear among investors. We believe buying put options on the S&P 500 and Nasdaq 100 offers a good way to hedge against further declines in the coming weeks.
The dollar’s strength is a major headwind for other assets, and we expect this trend to continue. Put options on the EUR/USD, with the pair already breaking below 1.1900, look attractive. Similarly, with gold failing to hold its record highs and plunging toward $5,000, we see further downside pressure as higher interest rates make non-yielding assets less appealing.
For more speculative assets like cryptocurrencies, this environment is particularly challenging, which helps explain Bitcoin’s slide toward $80,000. The falling open interest and negative funding rates in the derivatives market suggest professional traders are positioning for more losses. This reminds us of the dynamic seen in 2022, where a hawkish Fed drained liquidity from the most speculative corners of the market first.
