The United States saw its Consumer Price Index (CPI) rise by 2.7% year-on-year in December, maintaining the rate from November, according to the US Bureau of Labor Statistics. Core CPI, excluding food and energy, climbed 2.6% in December, which was a slight drop from the previous month\u2019s increase of 2.7%.<\/p>\n
Monthly figures showed a rise of 0.3% for the CPI and 0.2% for core CPI. The shelter index notably increased by 0.4%, contributing to the overall monthly rise, while the food index went up by 0.7%. Energy index saw a smaller increase of 0.3%.<\/p>\n
Following the release of the CPI data, the US Dollar Index (DXY) fell below the 99.00 mark due to declining American yields. In currency markets, the US Dollar strengthened against the Japanese Yen but weakened against several others, including the euro and pound.<\/p>\n
The Federal Reserve continues to monitor inflation, which remains above its 2% target. Though prices remain stable, core CPI is expected to peak at 3% in Q2 2026 and gradually reduce. December’s CPI report is not expected to drastically change the current monetary strategy. Higher interest rates in the US are typically associated with a stronger dollar, whereas Quantitative Easing tends to weaken it.<\/p>\n
The latest inflation report for December 2025 shows a familiar story, with prices staying firm and not dropping as quickly as some had hoped. With the headline Consumer Price Index at 2.7%, the market’s expectation for 50 basis points in rate cuts this year feels optimistic against a divided Federal Reserve. This tension between market hopes and central bank caution suggests we should prepare for significant price swings in the coming weeks.<\/p>\n
We believe the best way to position for this is by anticipating higher volatility, especially around future economic data releases. Looking at options on major indices or currency pairs could be a prudent strategy, as the “deeply split” Fed committee means any surprise in jobs or inflation data could cause an outsized market reaction. For instance, the CBOE Volatility Index (VIX) is currently trading near 14.5, a level that has historically been cheap ahead of uncertain monetary policy paths.<\/p>\n
The US Dollar’s immediate drop below the key 99.00 level on the DXY index shows that the market is leaning toward the rate-cut narrative. As long as inflation doesn’t unexpectedly surge again, this path of gentle dollar weakness may continue, particularly against currencies like the Euro. We should watch the technical levels mentioned, as a firm break above 1.1807 in EUR\/USD would confirm this trend and likely trigger further buying.<\/p>\n
Interest rate markets are already reflecting this dovish sentiment, with yields on US government bonds falling after the announcement. The CME FedWatch Tool now implies a nearly 70% probability of a 25 basis point rate cut by the Federal Reserve’s March meeting, a significant increase from just a few weeks ago. This makes long positions in Treasury note futures an attractive, though crowded, trade that is highly sensitive to any shift in the Fed’s tone.<\/p>\n
However, we must pay close attention to the details within the inflation report, especially shelter costs, which were the biggest driver of the monthly increase. We saw a similar dynamic back in 2024, where sticky shelter inflation made the final leg of the disinflationary journey the most difficult. Since shelter makes up over a third of the CPI basket, its continued strength could force the Fed to delay or reduce the number of planned rate cuts, quickly reversing the current market trends.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" U.S. inflation steady at 2.7% in December; core CPI dips slightly as shelter and food prices rise.<\/p>\n","protected":false},"author":62,"featured_media":16964,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-39025","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/39025","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=39025"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/39025\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/16964"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=39025"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=39025"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=39025"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}