Nordea reported that recent US data has been limited, but December core PCE rose more than expected. Core PCE is the Federal Reserve\u2019s preferred inflation gauge, and it contrasted with January CPI data.<\/p>\n
The December core PCE reading suggests inflation may be easing more slowly than the CPI implies. This supports the view that the Federal Reserve may keep interest rates unchanged for now.<\/p>\n
Nordea said the Fed adopted a more balanced view of labour market risks at its January meeting. This leaves scope for a wait-and-see approach in the near term.<\/p>\n
Nordea does not expect further interest rate cuts, including after Kevin Warsh replaces Jerome Powell. The note also stated that risks are still tilted towards further rate cuts.<\/p>\n
The article was produced using an artificial intelligence tool and reviewed by an editor. It was attributed to the FXStreet Insights Team, which curates market observations from external and internal analysts.<\/p>\n
Looking back to early 2025, the upside surprise in the December 2024 core PCE data was a clear warning sign. It correctly suggested that price pressures were not easing as quickly as the headline CPI numbers implied at the time. This view supported our expectation that the Federal Reserve would remain on hold for longer than the market anticipated.<\/p>\n
That persistent inflation has indeed been the story, with the most recent core PCE data for January 2026 holding firm at 2.8%, well above the Fed’s target. This, combined with the latest jobs report showing a resilient labor market that added 215,000 jobs, gives the central bank little reason to consider cutting rates. Historically, the Fed has been hesitant to ease policy with unemployment below 4.0% and inflation so far from its goal.<\/p>\n
For derivatives traders, this means that pricing for near-term rate cuts continues to look misplaced. Strategies that benefit from a stable-to-hawkish Fed policy, such as selling short-dated interest rate futures, could be advantageous. The market may need to re-price the timeline for easing, presenting an opportunity for those positioned for a prolonged hold.<\/p>\n
This policy stance should also provide underlying support for the US dollar. As the Fed stands firm, derivatives that bet on dollar strength against currencies whose central banks are signaling cuts could perform well. Call options on the USD against the euro, for instance, could prove timely as the European Central Bank has hinted at easing to combat sluggish growth.<\/p>\n
The divergence between market hopes for cuts and the Fed’s data-dependent reality is a key source of potential volatility. Any unexpectedly strong inflation or labor market data in the coming weeks could cause a rapid unwinding of dovish bets. Therefore, traders should consider options strategies that protect against or profit from sudden shifts in market sentiment.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Nordea says core PCE rose more than expected, supporting a wait-and-see Fed and unchanged interest rates.<\/p>\n","protected":false},"author":103,"featured_media":17026,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-50397","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\/50397","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\/103"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=50397"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/50397\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17026"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=50397"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=50397"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=50397"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}