In November, the US saw annual core PCE inflation rise to 2.8%, up from 2.7% in October. The PCE Price Index increased by 0.2%, according to the US Bureau of Economic Analysis. The core PCE Price Index is the Federal Reserve’s preferred measure of inflation, and it matched market expectations. Additional data showed a 0.3% rise in Personal Income and a 0.5% increase in Personal Spending for the month.

Bearish Pressure On The US Dollar

After this data release, the US Dollar came under bearish pressure, with the USD Index dropping 0.25% to 98.55. Economists and central banks focus on core inflation levels, aiming to keep them around 2%. Inflation can significantly impact a country’s currency. Higher inflation often leads to stronger currency, as rising interest rates attract global capital. Gold, typically a safe haven during inflation, becomes less appealing when interest rates increase because it raises the cost of holding it compared to interest-earning investments. Conversely, lower inflation can make gold more attractive by reducing interest rates and increasing its investment appeal. We remember that the rise in core PCE to 2.8% in November 2024 indicated stubborn inflation. This trend persisted throughout most of 2025, preventing the Federal Reserve from cutting interest rates as many had hoped. This ongoing inflation influenced the trading environment for the entire year.

Shifting Market Landscape In 2026

Now, the scene is changing as we enter 2026. The latest report for December 2025 revealed a significant cooling, with Core CPI falling to 2.4%, which was much lower than expected. Additionally, a disappointing jobs report showed only 150,000 new jobs, hinting at an economic slowdown. This sudden shift has raised expectations for Fed rate cuts in the next two quarters, a stark contrast to the “higher for longer” approach of 2025. The CME FedWatch Tool indicates over a 70% chance of a rate cut by June 2026. Traders should consider options on SOFR futures to prepare for increased rate volatility. A weaker economic outlook and potential lower interest rates are putting pressure on the US Dollar. After a stable period in late 2025, the DXY index has recently dropped below the crucial 97.50 support level. Strategies that benefit from a declining dollar, like buying puts on the USD or calls on currencies like the Euro or Yen, are now worth considering. The tension between last year’s stubborn inflation and emerging signs of a slowdown is creating significant market uncertainty. The VIX, which remained relatively low at the end of 2025, has climbed above 18 this month. This indicates that traders are expecting more volatility, making long volatility positions through VIX futures or options a smart hedge in the coming weeks. Create your live VT Markets account and start trading now.

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