Following the recent US CPI report, the markets have entered a calm period. In the crypto world, Ethereum has surged above $4,600, reaching a four-year high. Meanwhile, other asset classes show only slight changes. In the Forex market, major currencies are stable after a recent dollar drop. Traders expect a 25 basis point rate cut by September and about 60 basis points by year-end. Dollar pairs are showing limited movement, sticking to narrow ranges.

Quiet Equities Market

The equities market is relatively still, with S&P 500 futures standing flat after reaching record highs on Wall Street. Tech stocks continue to perform well, boosted by the ongoing AI boom. The market’s reaction to the CPI data indicates a calm atmosphere. According to the CPI report, core monthly inflation is at 0.322%, which aligns with predictions but is the highest since January. Core annual inflation is slightly above expectations at 3.059%, nearly 3.1%. Core goods inflation increased modestly by 0.21% month-on-month, showing little change from June. The median core goods inflation across 56 items dropped to 0.28% m/m from June’s 0.44% m/m. Analysts expect stronger increases in autumn, but inflation concerns for the Federal Reserve are currently on hold. Fed reactions are mixed, with different views on future rate cuts and tariff impacts. After the US inflation report on August 12, 2025, markets are taking a pause. Initial excitement has faded, and volatility, as shown by the VIX, has settled in the low 13s. This indicates that traders have processed the news and are now waiting for the next big development.

Outlook for Interest Rates

For those trading interest rates, the path ahead looks clear, with a September rate cut nearly certain. The CME FedWatch Tool shows a greater than 90% chance of a 25 basis point cut next month. This certainty likely means lower implied volatility on rate options, making it a good time to hedge against surprises later in the year. In the stock market, the AI-driven rally continues to push the S&P 500 to new heights, clearing the 6,500 level. This creates a split market, where tech thrives while other sectors lag due to inflation and tariff concerns. This divide supports strategies like pair trades, buying strong tech stocks while selling weaker industrial ones. The worry regarding tariffs has been postponed for another month, as July’s inflation numbers showed minimal impact. We saw a similar pattern in summer 2023 when markets traded sideways in low volume before volatility increased in autumn. It makes sense to prepare for a few quiet weeks, but expect increased activity as we enter September and October. The US dollar fell after the inflation data but has since stabilized, keeping major currency pairs within tight ranges. This low-volatility environment makes it cheaper to buy long-term options like straddles or strangles on pairs such as EUR/USD or USD/JPY. These positions could profit if the current calm is disrupted by a significant move in either direction this fall. The main exception to this calm is in the crypto market, where Ethereum has surpassed $4,600, a level not seen since the bull run of 2021. This surge appears to be driven by factors unique to the crypto space, separate from the overall economic picture. It serves as a reminder to view digital assets as their own ecosystem, where volatility is influenced by its own stories. Create your live VT Markets account and start trading now.

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