The US core Personal Consumption Expenditures (PCE) price index rose 3% year on year in December. This was higher than the expected 2.9%.
Core PCE excludes food and energy. It is a key inflation measure in the United States.
Core PCE And Market Implications
Core PCE for December 2025 came in hotter than expected at 3.0%. This set a cautious tone for the new year. That view strengthened after January’s jobs report showed a surprise gain of 250,000, well above forecasts. With recent CPI data also staying firm, the market is now lowering the odds of a March rate cut.
Markets are also removing the chance of a first-quarter cut. The CME FedWatch Tool shows less than a 20% chance of a March cut. This points to a “higher for longer” rate outlook. In that case, selling near-term interest rate futures may still be profitable. Expect continued volatility in options tied to Secured Overnight Financing Rate (SOFR) futures as traders adjust to this shift.
In this backdrop, we are putting more focus on protective strategies for equity portfolios. The CBOE Volatility Index (VIX) has risen from its December lows and recently touched 17. We think it may test higher levels. This recalls 2023, when similar inflation worries created profitable chances to buy put options on major indices for downside protection.
The stronger US dollar reflects these changing rate expectations. The Dollar Index (DXY) has broken above key resistance and is now trading above 105, a level not seen since last autumn. In the weeks ahead, we see value in using options to express a bullish view on the dollar versus currencies backed by more dovish central banks.
Dollar Strength And Positioning
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