The Chicago PMI index, which measures the health of manufacturing in the US, reached 54 in January, well above the expected 44. This surprising figure indicates stronger growth in the manufacturing sector. In the financial markets, the Dow Jones Industrial Average has dropped due to uncertainty around the appointment of a new Federal Reserve chair. Gold prices fell sharply but later bounced back above $5,000, driven by a stronger US dollar and profit-taking across commodities. Major cryptocurrencies like Bitcoin, Ethereum, and Ripple also faced significant weekly losses due to increased selling pressure.

Microsoft Stock Plunge

Microsoft’s stock dropped dramatically, costing the company $400 billion in market value, making it the second-largest loss ever. In a similar trend, Stellar cryptocurrency reached a three-month low as negative market sentiment and weak derivative trends took hold. Looking ahead, forex brokerages are preparing for 2026 by enhancing their offerings, such as low spreads and high leverage, to cater to various trading styles. However, potential investors should research thoroughly and understand risks instead of relying solely on predictions or opinions. The rise in the Chicago PMI to 54, above the forecast of 44, shows the economy is stronger than expected. This is the biggest positive surprise since the recovery from the pandemic. It signals a more aggressive stance from the Federal Reserve. The nomination of Kevin Warsh, a known hawk, as the new Fed chair supports this expectation, indicating we should brace for higher interest rates.

Interest Rate Expectations

We should expect interest rates to rise and stay elevated for longer, a big shift from the outlook in late 2025. Current projections show an almost 80% chance of a 50-basis-point rate hike in March, a significant change from just a week ago. This shift suggests a flatter yield curve, with strategies using options on 2-year and 10-year Treasury futures to benefit from rising short-term rates. The strengthening US dollar is a direct result, and this trend is likely to continue. Options strategies that favor a drop in EUR/USD, like buying puts at a 1.1800 strike price, provide a clear opportunity to take advantage of this movement. The dollar’s strength is widespread, affecting currencies that were favored in late 2025. In the stock market, the Microsoft drop highlights the vulnerability of high-duration growth stocks to rising rates. The VIX index has surged above 25, a level not seen since early 2025 during regional banking troubles. In this environment, it may be wise to buy protection through index put options or establish collar strategies on existing positions. The sharp decline in gold and silver prices results from rising real yields, which make holding non-yielding metals less attractive. This situation resembles historic sell-off events, indicating that any short-term price rises may face further selling pressure. Rallies should be viewed as chances to establish new short positions or sell out-of-the-money call spreads. Create your live VT Markets account and start trading now.

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