The Producer Price Index (PPI) in the United States for December rose by 0.5%, exceeding the expected 0.2% increase. This boost in the PPI helped strengthen the US Dollar as traders evaluated its effects alongside other economic news. As a result, the EUR/USD pair fell below the 1.1900 mark. The decline was also influenced by President Trump’s nomination of Kevin Warsh as the new chair of the Federal Reserve, which happened around the same time the PPI data was released.

GBP/USD Movement

GBP/USD dipped to around 1.3710, showing further weakness due to the stronger US Dollar. This movement reflects how the market is responding to the new Federal Reserve chair’s appointment. Gold prices retreated but stayed above $5,000 amid profit-taking and a stronger US Dollar. The commodity market saw volatility, with mixed US Treasury yields affecting gold’s value. Cryptocurrencies like Bitcoin, Ethereum, and Ripple experienced a significant sell-off, with losses of about 6%, 3%, and 5% respectively. Bitcoin neared its November lows, while Ethereum fell below $2,800. In December 2025, producer prices rose by 0.5%, which was more than twice what was predicted, changing the market’s direction. This surprising inflation data is now central to our strategy. Everyone is watching for the January Consumer Price Index (CPI) report next week to see if this trend continues.

Impact of Fed Policy

Kevin Warsh’s nomination to lead the Federal Reserve last month has greatly changed expectations around interest rates. As of this morning, the Fed Funds futures market fully predicts a 50-basis-point rate hike for March, up from only a 25% chance a month ago. Traders should consider options strategies that benefit from rising rate volatility, like straddles on Treasury bond ETFs. The US Dollar Index (DXY) is on a strong rally, breaking past the 105.50 level this week for the first time since mid-2025. This strength follows the shift in Fed policy after the surprising inflation data in December. We expect that long positions in the dollar against currencies like the Euro and Pound will be profitable in the next few weeks. Gold’s sharp decline from its record highs above $5,000 last month shows its sensitivity to a stronger dollar and rising real yields. Recent data from the Commodity Futures Trading Commission (CFTC) indicates that large speculators have reduced their net long positions in gold futures by over 30% since late December. We recommend buying put options on gold or gold mining ETFs as a hedge against potential further declines. The significant drop in Microsoft shares in late 2025 serves as a warning for high-growth tech stocks in a rising interest rate environment. This cautious sentiment continues, with the Nasdaq 100 VIX (VOLQ) increasing by over 25% in January 2026 alone, highlighting the demand for portfolio protection. Using index put spreads on the QQQ could help guard against a larger market correction. Digital assets are showing strong weakness as investors rush to the safety of the US dollar. After falling below the key $80,000 level in late 2025, Bitcoin has struggled to stabilize, and open interest in perpetual futures contracts has declined by another 15% this month. We expect continued downward pressure on cryptocurrencies until the overall economic situation improves. Create your live VT Markets account and start trading now.

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