The S&P Global Services PMI for January in the United States was 52.7, which is better than the expected 52.5. This suggests that the service sector is experiencing a slight growth and shows that economic activity is ongoing.
The Canadian dollar stayed stable after the US government reopened, even though the ADP data was disappointing. In the stock market, the Dow Jones Industrial Average rose because Eli Lilly did well, while AMD fell due to weak guidance.
Gold prices dropped nearly 1% as the US dollar gained strength with easing geopolitical tensions. Meanwhile, the Euro remained near four-year highs ahead of an upcoming ECB rate decision.
Bitcoin, Ethereum, and XRP saw slight increases despite uncertainties in the economy and lower retail participation. Ripple stayed stable, even with mixed signals and continued ETF inflows in the market.
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The better-than-expected services PMI data of 52.7 for January indicates that the U.S. economy is gaining momentum. This report, along with last week’s strong jobs report showing an increase of 220,000 jobs, suggests ongoing economic strength. This makes it harder for the Federal Reserve to lower interest rates soon.
We need to rethink when the first rate cut will happen, which the markets had expected in spring. In 2025, strong data pushed back rate cut expectations and led to market volatility. With Core PCE inflation at 3.1% in December 2025, the Fed has little urgency to ease monetary policy.
For derivatives traders, it’s essential to adjust expectations for rate-sensitive assets. The chances of a March rate cut are now much lower, meaning positions based on that outcome are at a greater risk. Looking into Secured Overnight Financing Rate (SOFR) futures could be wise, perhaps by buying puts to bet on higher interest rates continuing into the second quarter.
This situation also favors the U.S. dollar, as longer higher interest rates make it more appealing. We’ve already seen the Dollar Index (DXY) rise above 104.50 due to recent data. Considering call options on the USD against currencies from central banks that are more lenient could be a good strategy for the coming weeks.
In the equity markets, the “higher for longer” interest rate outlook could create challenges, especially for growth and tech stocks. We might think about buying protective puts on indices like the Nasdaq 100 or S&P 500. This strategy may protect against potential market declines as investors adjust their expectations for the year.
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