The S&P Global Composite PMI for the US dropped in December but remained above 50. The US Dollar Index is experiencing bearish pressure, hovering slightly below 98.00.
In December, the Manufacturing PMI decreased from 52.2 to 51.8, while the Services PMI declined from 54.1 to 52.9. This indicates that business activity in the US private sector continued its expansion but at a slower rate compared to November, with the Composite PMI falling from 54.2 to 53.
Economic Growth Slowing
Economic growth appears to be slowing, with the survey data indicating an annualised GDP expansion of about 2.5% for the fourth quarter. Confidence among firms has decreased, leading to reduced hiring due to the challenging business environment.
Following the release of the PMI data, the US Dollar Index is on the decline, with a recorded loss of 0.3%, standing at 97.96.
The new PMI data indicates that economic growth is losing steam as we close out the year. Although the numbers are still in expansion territory, the clear slowdown in both manufacturing and services suggests traders should consider defensive positions. This could involve buying put options on broad market indices like the S&P 500, anticipating that corporate earnings may soften in the first quarter of 2026.
This economic cooling, combined with the recent November 2025 Consumer Price Index report showing inflation moderating to 3.1%, reduces the pressure on the Federal Reserve to maintain a hawkish stance. We see this as an opportunity to trade interest rate derivatives, possibly positioning for lower rates in the coming year through futures contracts. The chance of a rate hike in the next FOMC meeting has now likely diminished significantly.
Dollar Index Reaction and Market Strategy
The US Dollar Index has already reacted, dipping below 98.00 and continuing its weak trend from last month. Given the slowing growth and less aggressive Fed outlook, we expect this dollar weakness to persist. Traders could look at buying call options on currency pairs like the EUR/USD, which is currently trading near a three-month high of 1.0950.
Fading confidence and slower hiring plans point to rising uncertainty in the market. This makes volatility a potentially profitable trade through options on the VIX. A gradual increase in the VIX from its current low levels could be a sign of growing market anxiety heading into the new year.
This pattern feels similar to the economic slowdown we navigated back in late 2023, where early signs of weakness preceded a broader market correction. The decline in the manufacturing PMI to 51.8, while still expansionary, suggests weakening demand for industrial commodities. Bearish plays on copper futures could be a tactical response to this specific data point.
