The Producer Price Index (PPI) in the United States, without including food and energy, jumped by 0.7% in December. This was much higher than the expected 0.2%. Such an increase could affect financial markets and economic predictions. Currency changes showed that the USD/JPY rose as the US Dollar gained strength, supported by policy announcements and Kevin Warsh’s nomination as Federal Reserve Chair. In contrast, the EUR/USD dropped below 1.1900, and the GBP/USD faced downward pressure nearing 1.3700.

Stabilization Of Commodities

Commodities like gold stabilized above $5,000, despite recent drops. However, Stellar fell to a three-month low of $0.20, with technical indicators suggesting a continued decline. Cryptocurrencies, including Bitcoin, Ethereum, and Ripple, experienced sell-offs, recording weekly drops of nearly 6%, 3%, and 5% respectively. Bitcoin approached its November low of $80,000, while Ethereum fell below $2,800 due to high selling pressure. Microsoft lost $400 billion in market value after its earnings report, which affected other indices, even though the downturn was mainly linked to Microsoft. The surprising rise in producer price inflation noted in December 2025 is significant. Coupled with Kevin Warsh’s hawkish reputation, the market anticipates more aggressive actions from the Federal Reserve, likely leading to higher interest rates for longer periods than expected.

Interest Rate Futures Markets

Interest rate futures markets are undergoing major adjustments. The CME FedWatch tool now indicates an almost 85% chance of a 50-basis-point increase at the March meeting, up drastically from just 30% last month. Traders might want to buy puts on bond ETFs, like TLT, to benefit from rising yields. The U.S. dollar stands to gain the most from these shifts. The U.S. Dollar Index (DXY) climbed past 105.50 this week, reaching its highest level since late 2024. Maintaining long dollar exposure through call options on dollar-tracking ETFs or shorting currency pairs like EUR/USD, which has broken key support levels, could be advantageous. For stock markets, this scenario presents challenges. The CBOE Volatility Index (VIX), known as the market’s “fear gauge,” surged over 40% in the last two weeks, closing above 22. Traders might consider buying put options on major indices like the S&P 500 or Nasdaq 100 as a way to hedge or speculate on further declines. A strong dollar and the potential for higher real interest rates are detrimental to non-yielding assets like gold. The recent pullback in gold aligns with the pattern seen in 2022, when aggressive Fed tightening led to a sharp decline. This perspective can be expressed by shorting gold futures or buying puts on gold ETFs. Market sentiment has shifted to “risk-off,” negatively impacting speculative assets. We can see this in the crypto market, where Bitcoin struggles to maintain critical support levels, and among high-beta tech stocks. Caution is advised, and traders might consider strategies that profit from falling prices in the most volatile market segments. Create your live VT Markets account and start trading now.

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