In November, the Core Personal Consumption Expenditures (PCE) Price Index in the United States rose by 0.2% compared to the previous month. This aligns with market expectations, bringing the core PCE inflation rate to 2.8% for that month. The Euro gained value against the Dollar thanks to softer US economic data and reduced trade tensions between the US and the EU, increasing overall market confidence. Meanwhile, the GBP/USD pair climbed to near two-week highs as the easing of these trade tensions improved the outlook for the British Pound.

Gold and Cryptocurrency Market Trends

Gold prices have been rising, approaching record highs of $4,880 per troy ounce, largely due to a weakening US Dollar. In the cryptocurrency market, Bitcoin, Ethereum, and XRP all saw slight increases. XRP has managed to hold around $1.90 as a key support level. Donald Trump’s recent change in stance on NATO tariffs indicates a move towards easing tensions, which initially created more conflict. However, the inflow of ETFs has benefited XRP, suggesting that market dynamics are shifting despite cautious sentiment among retail investors. Looking back to November 2025, inflation data remained steady at 2.8%, which contributed to a weaker dollar and a boost in risk assets. However, as we enter late January 2026, the landscape has changed. The latest Core PCE data for December, released last week, showed a slight rise to 2.9%, indicating that inflation is proving more persistent than expected.

Impact on Federal Reserve Rate Expectations

This ongoing inflation is forcing a reevaluation of the Federal Reserve’s interest rate expectations. According to the latest figures from the CME FedWatch tool, markets now see less than a 40% chance of a rate cut by March, down from over 70% just one month ago. This change suggests that the Fed may remain cautious for a longer period than we previously thought. As a result, the dollar’s weakness at the end of 2025 is reversing, with the DXY index rising by over 1.5% in the last two weeks alone. We can expect continued pressure on currency pairs like EUR/USD and GBP/USD, which are now trading significantly lower than the highs in November. Options traders might consider buying puts on these currencies to protect against any further dollar strength. The outlook for Gold has also changed, as prices pull back from the $4,900 levels targeted in November. Prolonged high interest rates increase the opportunity cost of holding non-yielding assets like gold, which has dropped to around $4,750. Expect high volatility as the market adjusts to the new rate expectations. To add to the uncertainty, the trade de-escalation seen in late 2025 seems to be diminishing. New reports about US-EU conflicts over digital services taxes are creating additional volatility. Traders should utilize derivatives to prepare for potential market swings stemming from any new tariff announcements. Create your live VT Markets account and start trading now.

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