US annual CPI inflation slowed to 2.4% in January, down from 2.7% in December, according to the BLS. This was below the market forecast of 2.5%. Monthly CPI rose 0.2% in January, after a 0.3% increase in December. Core CPI rose 2.5% year over year, in line with expectations.

Market Reaction And Key Numbers

After the release, the US Dollar Index slipped from session highs and was last near flat at 96.90. Before the data, forecasts called for 2.5% annual CPI and 0.3% monthly CPI. Core CPI was expected at 0.3% month on month and 2.5% year on year. The CPI report was delayed due to a brief partial US government shutdown. CPI inflation has stayed below 3% since mid-2024. The lowest reading in the past two years was 2.3% in April 2025. The Federal Reserve’s inflation target is 2%, and it mainly bases policy on the PCE Price Index. Donald Trump nominated Kevin Warsh for Fed Chair when Jerome Powell’s term ends in May. EUR/USD levels referenced included 1.1900, 1.1820, 1.1930, 1.1980, 1.2082, 1.1800–20, 1.1760 and 1.1700.

Trading Implications And Fed Path

January inflation came in slightly below expectations at 2.4%. On its own, that would usually support the case for an interest rate cut. But core inflation held steady at 2.5%, which sends a mixed message to the Federal Reserve. As a result, the timing of the next policy move remains unclear. Market pricing reflects that uncertainty. The CME FedWatch Tool now shows about a 40% chance of a rate cut at the March meeting, only a small increase after the data. The Fed has kept its key rate in a 5.25% to 5.50% range for more than a year, waiting for clearer evidence that it can begin easing. This CPI report alone is unlikely to be enough. For derivatives traders, the key theme over the next few weeks is volatility. The CBOE Volatility Index (VIX) is near 16, showing elevated policy uncertainty without signs of panic. Options on major indices and currencies may become more expensive as traders prepare for a sharper move. We have seen a similar setup before, based on what happened in 2025. After CPI fell to a two-year low of 2.3% in April 2025, a run of stronger economic data kept the Fed on hold through the summer. That history suggests caution about betting on an immediate rate cut based on one softer headline reading. The next major catalyst is the March FOMC meeting, and traders may want to position with that in mind. One approach is to use options expiring in late March or April to capture the market reaction to the Fed’s decision and statement. A main focus will be any changes to the Fed’s official economic projections. In FX, the dollar’s muted reaction has kept EUR/USD capped below the 1.1930 resistance level. One-month implied volatility in EUR/USD options has climbed above 7.5%, suggesting the market expects a potential breakout. Traders can use this to structure trades for either continued range-bound action or a bigger move after the next jobs report. Create your live VT Markets account and start trading now.

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