The RealClearMarkets/TIPP Economic Optimism Index in the US increased to 47.9 in December, beating expectations of 44.1. This suggests a better outlook than previously predicted. In other news, the EUR/USD pair struggled to rise despite changes in the US Dollar’s value. Additionally, GBP/USD dropped below 1.3200, as the market anticipates an interest rate cut by the Bank of England.

Gold Prices and Bitcoin Levels

Gold prices fell to around $4,160 due to mixed US Treasury yields and a stronger Dollar. Bitcoin stayed above $87,000, facing pressure from declines in US manufacturing and possible interest rate changes from the Bank of Japan. The White House is preparing actions in case the Supreme Court overturns tariffs started by Trump. Although there are talks of reversing these tariffs, the administration plans to keep them in place and explore other options for support. The unexpected rise of the Economic Optimism Index to 47.9 implies there may be more positive surprises in US economic data. Although the index is still below the optimistic mark of 50, this increase reflects a sentiment shift seen in late 2023, which often leads to short-term market rallies. For derivatives traders, this could suggest buying short-term call options on the S&P 500 or employing strategies that benefit from increased implied volatility.

Monetary Policy Uncertainty

President Trump’s mention of Kevin Hassett as a potential Fed Chair introduces significant uncertainty in monetary policy for the upcoming year. Given Hassett’s typically dovish stance, futures markets might start pricing out future rate hikes, which could steepen the yield curve. Traders may want to use options on Treasury futures to capitalize on the volatility leading up to the next official FOMC statements. The decline in gold to below $4,200 seems to reflect profit-taking before the Fed meeting rather than a change in the long-term trend. The latest CPI data for November 2025 still shows inflation stubbornly above 3%, similar to the inflation we faced in 2023. If the Fed makes any dovish statements, it could lead to a sharp rebound. We recommend buying protective put options in the short term while looking for better entry points on gold futures. We are witnessing a significant policy divergence in currency markets, creating clear opportunities in foreign exchange derivatives. With markets mostly expecting a rate cut from the Bank of England this month, put options on GBP/USD appear attractive. Meanwhile, the potential for a significant rate hike from the Bank of Japan suggests buying calls on the Yen as protection against a global risk-off event. Bitcoin’s recent struggle to stay above $87,000 signals potential trouble for broader risk assets, as it responds negatively to a shrinking US manufacturing sector. This economic weakness, combined with a more hawkish stance from the Bank of Japan, resembles the conditions that caused a broad market downturn in 2022. We suggest using this situation to purchase out-of-the-money put options on Bitcoin and tech-heavy indices as a cost-effective hedge against a deeper market correction. Create your live VT Markets account and start trading now.

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