The S&P Global Composite PMI for the US fell in December but stayed above 50. The US Dollar Index is under bearish pressure, slightly below 98.00. In December, the Manufacturing PMI went down from 52.2 to 51.8, and the Services PMI dropped from 54.1 to 52.9. This shows that while business activity in the US private sector is still growing, the rate of expansion has slowed compared to November. The Composite PMI decreased from 54.2 to 53.

Economic Growth Slowing

Economic growth seems to be slowing down. Survey data indicates an annual GDP growth of about 2.5% for the fourth quarter. Confidence among companies has fallen, leading to fewer hiring opportunities due to a tough business climate. After the PMI data was released, the US Dollar Index fell by 0.3% to 97.96. The new PMI data signals that economic growth is weakening as we end the year. Even though the numbers are still positive, the slowdown in manufacturing and services suggests that traders may want to adopt defensive strategies. This could include purchasing put options on market indices like the S&P 500, as corporate earnings might decline in the first quarter of 2026. This economic cooling, along with the November 2025 Consumer Price Index report showing inflation easing to 3.1%, lessens the urgency for the Federal Reserve to maintain a tough stance. This situation presents an opportunity to trade interest rate derivatives, possibly setting the stage for lower rates next year through futures contracts. The likelihood of a rate hike in the next FOMC meeting has significantly decreased.

Dollar Index Reaction and Market Strategy

The US Dollar Index has already responded, dipping below 98.00 and continuing its downward trend from last month. With slowing growth and a less aggressive outlook from the Fed, we expect this dollar weakness to continue. Traders might consider buying call options on currency pairs like EUR/USD, which is nearing a three-month high of 1.0950. Decreased confidence and slower hiring plans signal increasing uncertainty in the market. This makes volatility a potentially lucrative opportunity through VIX options. A gradual rise in the VIX from its current low levels could indicate growing market anxiety as we approach the new year. The current situation feels similar to the economic slowdown we faced in late 2023 when early signs of weakness preceded a broader market correction. The decrease in the manufacturing PMI to 51.8, while still indicating growth, suggests a decline in demand for industrial commodities. Taking bearish positions on copper futures could be a smart response to this specific data point. Create your live VT Markets account and start trading now.

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