In October, the United States saw a drop in nonfarm payrolls, which fell to 64,000 from 119,000 in September. This change might affect exchange rates, as shown by the GBP/USD pair’s reaction. The U.S. economic indicators are mixed. In December, the S&P Global Manufacturing PMI dropped to 51.8, and the Services PMI fell to 52.9. Meanwhile, U.S. retail sales were stable at $732.6 billion in October.

Geopolitical Tensions Impact

Ongoing geopolitical tensions between Ukraine and Russia continue to impact various markets. Gold prices have decreased a bit after last week’s gains, and traders are cautious due to these tensions. In cryptocurrency, Binance Coin (BNB) is trading around $855 as bearish trends persist. Increased retail activity may affect its future performance. The October jobs report, which showed only 64,000 new jobs, has created a negative outlook for the U.S. economy this quarter. The recent December S&P Global PMI data, showing declines in both manufacturing and services, supports our idea that a significant slowdown is occurring. This trend of weakening data suggests tough times ahead as we approach 2026.

Federal Reserve Rate Speculations

We think the recent soft economic reports make a Federal Reserve rate hike in early 2026 very unlikely. Traders should pay attention to derivatives related to the Fed Funds Rate, as the market is now expecting a higher chance of a rate cut in the first half of the year. Currently, futures pricing indicates over a 50% likelihood of a rate cut by the end of the second quarter, up from just 20% a month ago. The immediate effect has been a weaker U.S. dollar, which has fallen below key technical levels against the Euro and Pound Sterling. This trend suggests that strategies like buying call options on currency pairs such as EUR/USD could be wise for potential gains. A similar situation occurred in late 2023 when signs of economic slowing led to a quick dollar sell-off. For equity indices like the S&P 500, this economic slowdown poses challenges for corporate earnings and overall market sentiment. We may want to consider protective strategies, such as buying put options on major index ETFs, to guard against a potential downturn. The CBOE Volatility Index (VIX) has already risen from its lows last month to above 18, indicating that traders are starting to factor in more risk. Create your live VT Markets account and start trading now.

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