In December, Germany’s Consumer Price Index (CPI) dropped to 1.8% year-on-year, down from 2.3%. This decline indicates a shift in inflation pressures in the German economy. In the market, fluctuations included the GBP/USD falling below 1.3550, even though the US Dollar gained strength due to softer US PMIs.

Gold Prices and Market Movements

Gold prices have remained steady above $4,450. Global political tensions and Federal Reserve rates have kept demand for gold strong, despite the stronger US Dollar. In the cryptocurrency market, Bitcoin is adjusting towards $93,000. Ethereum and Ripple have cooled off after recent gains, hinting at profit-taking. Cardano showed strength by breaking above the 50-day EMA resistance, indicating a risk-on sentiment in the crypto market with potential for a significant breakout. Overall, various factors, including geopolitical news, economic indicators, and currency changes, have created a lively financial landscape as 2023 continues.

Potential European Central Bank Actions

With Germany’s CPI for December 2025 dropping to 1.8%, inflation in the Eurozone’s largest economy is now below the European Central Bank’s 2% target. This rise in the likelihood of an ECB interest rate cut in the first quarter of 2026 confirms the disinflation trend we noticed in the latter half of 2025. Traders should expect the ECB to adopt a more dovish stance in the coming weeks. The market seems to be underestimating the pace of potential rate cuts, with forward swaps only indicating a 40% chance of a cut by April. Based on similar rapid inflation declines seen in late 2023, we anticipate the market will swiftly adjust to price in at least two full rate cuts for 2026, with the first possibly as early as March. For interest rate derivatives, this suggests preparing for lower short-term rates by considering long positions in Euribor futures. In the foreign exchange market, the Euro is likely to face increasing pressure, especially as the US Dollar remains strong. The drop in EUR/USD below 1.1700 is likely just the start, making long-dated put options on this pair an attractive strategy to hedge against further declines. This situation should support European equities, as lower borrowing costs can boost corporate earnings expectations. We anticipate greater demand for call options on major European indices like the German DAX and the Euro Stoxx 50. The DAX, which rose 12% in 2025, has historically performed well during periods of declining interest rates, like the easing cycle in 2019. Create your live VT Markets account and start trading now.

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