US annual PCE price index beats December forecast, rising to 2.9%
US personal consumption expenditures (PCE) price index inflation rose 2.9% year over year in December. This was above the 2.8% forecast.
The reading was 0.1 percentage points higher than expected. This suggests inflation was a bit hotter than markets predicted.
US monthly PCE price index beats forecasts, rising 0.4% vs 0.3% expected in December
US personal consumption expenditures (PCE) price index rose 0.4% month over month in December. This was above the 0.3% forecast.
The December reading was 0.1 percentage points higher than expected. It points to faster monthly price growth than the forecast suggested.
Implications For Fed Policy
This higher-than-expected inflation reading from late last year supports our view that the Federal Reserve will delay any potential rate cuts. The December PCE data signals that underlying price pressures remain stubborn. We should adjust our positions for a more hawkish Fed, at least through the first quarter of 2026. Since the December release, markets have sharply repriced rate expectations. The CME FedWatch tool shows the probability of a March rate cut has dropped from over 50% at the start of the year to below 20% this week. That shift suggests short-term interest rate futures could face more downward pressure. For equity markets, this points to higher volatility, especially in interest-rate-sensitive growth and tech stocks. The VIX has already moved up from below 14 in late 2025 to a steadier range around 17. Derivatives traders may want to buy protective puts on indices like the Nasdaq 100 or use bearish call spreads. The inflation signal was reinforced by a stronger-than-expected January jobs report. The economy added 225,000 jobs, beating estimates. A strong labor market makes continued wage growth more likely, which can keep consumption and inflation elevated. If this continues, a dovish Fed pivot looks unlikely in the near term.Positioning Across Major Assets
This environment is bullish for the U.S. dollar because higher rates tend to attract foreign capital. We expect the Dollar Index (DXY), already at a three-month high of 104.50, to test higher resistance levels. Long dollar positions against currencies with more dovish central banks, such as the euro or yen, may make sense. We remember a similar period of stubborn inflation in 2023, when the final move back toward the 2% target was the hardest. That experience showed the risk of positioning for rate cuts too early. The market is now facing that same reality again. Create your live VT Markets account and start trading now.US personal spending rose 0.4% in December, in line with economists’ forecasts
US personal spending rose 0.4% in December, matching forecasts.
This suggests consumers kept spending at a steady pace at the end of 2025. No further details were provided.
Market Impact And Fed Outlook
The 0.4% rise in December spending supports our view that the economy is growing in a steady, but slow, way. For derivatives traders, the lack of a surprise removes a major trigger for near-term market swings. We think this supports the Federal Reserve staying patient on interest rates into the spring. With markets absorbing expected data, implied volatility on major indexes may ease in the near term. We saw the VIX drop below 14 after similar in-line releases in Q4 2025, which benefited traders selling option premium. In this type of market, strategies such as iron condors on broad-market ETFs can be appealing, as they aim to profit from range-bound trading. Our focus now shifts to upcoming inflation data to help time the first possible rate cut, since steady growth alone is unlikely to push the Fed into action. Fed funds futures currently price about a 65% chance of a 25-basis-point cut by the June 2026 meeting. If inflation comes in hotter than expected, those odds would likely fall, which could increase volatility. Although spending held firm, the same December report showed the personal savings rate fell to 3.4%, continuing last year’s trend. This suggests consumers are using savings to keep spending, which cannot continue forever. Another drop in the next report could be an early warning sign for consumer discretionary stocks.Consumer Balance Sheet Watch
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US core personal consumption expenditures (PCE) price index rose 0.4% month on month in December. The forecast was 0.3%.
The result was 0.1 percentage points above the forecast. It shows core prices grew faster than expected.
Implications For Fed Policy
The higher-than-expected Core PCE data for December 2025 was an early sign that inflation was not easing as quickly as expected. It suggested the path back to the Fed’s 2% target could be bumpy. As a result, markets have had to rethink how soon the Federal Reserve might start cutting interest rates in 2026. This worry grew after the January 2026 inflation report released last week. It showed core CPI still high at 3.1%. The labor market also remains strong. Together, these factors strengthen the case for the Fed to delay any policy easing. That makes the upcoming January PCE report, due at the end of next week, especially important. Because of this uncertainty, interest rate markets may stay volatile in the coming weeks. The MOVE Index, which measures Treasury market volatility, has already reached its highest level since last October. Options strategies that benefit from volatility, not just market direction, may be useful. Since the start of the year, the market has sharply reduced expectations for rate cuts. Fed funds futures now show only a 25% chance of a cut by the June 2026 meeting. That is down from 70% just six weeks ago. This change supports trades that assume rates stay higher for longer, such as buying puts on longer-duration bond funds. This setup looks similar to early 2024. Back then, several strong economic reports quickly removed hopes for near-term rate cuts. The 2-year Treasury yield rose as markets moved closer to the Fed’s cautious stance. A similar move could be starting now if inflation continues to surprise on the upside.Key Comparison With Early 2024
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US personal income rose 0.3% month over month in December, matching expectations. This shows income growth continued at the forecast pace.
This report tracks monthly changes in income earned by individuals in the United States. Analysts watch it as part of broader checks on household finances and overall economic conditions.
Market Volatility Outlook
The December 2025 personal income figure was exactly as expected, which suggests a more predictable economic backdrop. With no surprise in the data, market uncertainty tends to fall. That points to lower volatility in the coming weeks. In this setting, strategies that benefit from range-bound trading may fit better than those that rely on sharp breakouts. This steady reading gives the Federal Reserve little reason to change its current wait-and-see approach to interest rates. January 2026’s inflation report showed a small cooling to 2.8%, and the stable income number supports the case for patience. This backdrop can favor selling volatility in rate-sensitive markets, since an unexpected policy shift now looks less likely. The CBOE Volatility Index (VIX) is already showing this calmer tone, drifting down toward 14. That can make selling options premium on major indices more appealing. A similar quiet stretch in late 2024 also supported these types of strategies when economic data repeatedly met expectations without creating surprises. Steady income growth can support consumer spending, which is generally positive for corporate earnings. The January 2026 retail sales report showed a modest but steady 0.4% increase, reinforcing that trend. One possible approach is to look at call options on consumer discretionary sector ETFs, since these companies often benefit when households have stable finances.Consumer Spending Implications
Create your live VT Markets account and start trading now.US core PCE inflation rose to 3% year on year in December, exceeding the 2.9% forecast
The US core Personal Consumption Expenditures (PCE) price index rose 3% year on year in December. This was higher than the expected 2.9%.
Core PCE excludes food and energy. It is a key inflation measure in the United States.
Core PCE And Market Implications
Core PCE for December 2025 came in hotter than expected at 3.0%. This set a cautious tone for the new year. That view strengthened after January’s jobs report showed a surprise gain of 250,000, well above forecasts. With recent CPI data also staying firm, the market is now lowering the odds of a March rate cut. Markets are also removing the chance of a first-quarter cut. The CME FedWatch Tool shows less than a 20% chance of a March cut. This points to a “higher for longer” rate outlook. In that case, selling near-term interest rate futures may still be profitable. Expect continued volatility in options tied to Secured Overnight Financing Rate (SOFR) futures as traders adjust to this shift. In this backdrop, we are putting more focus on protective strategies for equity portfolios. The CBOE Volatility Index (VIX) has risen from its December lows and recently touched 17. We think it may test higher levels. This recalls 2023, when similar inflation worries created profitable chances to buy put options on major indices for downside protection. The stronger US dollar reflects these changing rate expectations. The Dollar Index (DXY) has broken above key resistance and is now trading above 105, a level not seen since last autumn. In the weeks ahead, we see value in using options to express a bullish view on the dollar versus currencies backed by more dovish central banks.Dollar Strength And Positioning
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US flash S&P Global PMI data for February is due on Friday at 14:45 GMT. January’s Composite PMI was 53, and February is expected to increase as both manufacturing and services output rise.
The flash Manufacturing PMI is forecast at 52.6, up from 52.4 in January. The flash Services PMI is forecast at 53, up from 52.7. Services make up about two-thirds of the US economy.
Technical Levels To Watch
EUR/USD was last near 1.1765 and is trading close to support at 1.1766. The 20-day EMA sits at 1.1818, and price is below it. The 14-day RSI is 45 after dropping from above 70. If EUR/USD closes above the 20-day EMA, it could move toward the 11 February high at 1.1927. If it remains below the EMA, focus may shift to the 22 January low at 1.1670. The Services PMI is a monthly, survey-based measure of activity in the US services sector. A reading above 50 signals expansion, while a reading below 50 signals contraction. It can also give early clues about GDP, industrial output, jobs, and inflation. The latest US Services PMI came in stronger than expected, suggesting the largest part of the economy is still expanding at a solid pace. This immediately boosted the US Dollar and pushed EUR/USD below the key 1.1766 support level. Markets are reading this as another sign the Federal Reserve has little reason to consider rate cuts soon.Trading Implications And Strategy
This strong services report, along with slightly higher core inflation in January 2026, supports the view that US interest rates may stay high. In 2025, the Federal Reserve stayed hawkish for much of the year due to similar resilience in the data. This policy gap could widen further, especially as the European Central Bank has hinted at possible easing due to weak industry in Germany. For traders, this may increase the appeal of strategies that benefit from a stronger dollar or a weaker euro. With support clearly broken, buying EUR/USD put options to target the 22 January low at 1.1670 could be a workable approach in the weeks ahead. Implied volatility may tick up after this release, which could also make option-selling strategies—such as covered calls on euro-long positions—more attractive for those seeking income. A similar pattern appeared in mid-2023, when strong services data kept the dollar supported even as other areas cooled. That period led to a steady grind lower in some currency pairs, rather than a sharp drop. Because of that, traders may prefer defined-risk approaches like bear put spreads on EUR/USD, which can profit from a gradual move down while limiting downside risk. Create your live VT Markets account and start trading now.Buoyant UK sales and PMI lift sterling, pushing EUR/GBP lower despite stronger Eurozone PMI support
EUR/GBP fell on Friday after strong UK Retail Sales and early PMI data lifted Sterling. Eurozone flash PMI figures failed to boost the Euro. The pair traded near 0.8733, down about 0.13% on the day, but was still on track for a third weekly gain.
UK Retail Sales rose 1.8% month-on-month in January. This beat the 0.2% forecast and improved from December’s 0.4%. Year-on-year Retail Sales rose 4.5%, up from a downwardly revised 1.9% and above the 2.8% forecast.
Uk Data Powers Sterling
S&P Global’s early PMI readings were strong. The Composite PMI rose to 53.9, a 22-month high. Manufacturing climbed to 52, an 18-month high. Services held at 53.9. All three came in above forecasts. The survey suggested GDP could grow by a little over 0.3% in Q1, if the pace continues into March. It also showed faster growth in manufacturing export orders, at the quickest pace since the pandemic. In the Eurozone, the HCOB Composite PMI rose to 51.9 in February from 51.3. This was above the 51.5 forecast and marked a three-month high. Manufacturing jumped to 50.8 from 49.5, moving back above 50.0 and reaching a 44-month high. Services edged up to 51.8 from 51.6, but missed the 52.0 forecast. Germany posted its fastest expansion in four months, while France was largely unchanged. In other countries, growth continued but slowed to its weakest pace since June 2025.Strategic Implications For Eur Gbp
Around this time last year, a key shift started to take shape. UK data began to beat Eurozone data more often. That helped support the Pound through much of 2025. This gap in momentum still shapes today’s market. UK strength has held up, especially on inflation. UK core inflation only recently fell below 3.0%, based on the January 2026 release. This has kept the Bank of England more cautious about cutting rates than the European Central Bank. When the BoE is more hawkish than the ECB, as in 2017–2018, EUR/GBP has often drifted lower. This divergence may create options opportunities in the weeks ahead. Buying EUR/GBP put options, targeting a move toward 0.8550, could be a reasonable strategy. Recent figures still show a split within Europe. Germany’s February ZEW Economic Sentiment reading was a strong 15.2, while the wider Eurozone measure was weaker at 11.8. This points to ongoing internal softness. Traders may want to position for more Sterling strength versus the Euro. UK services PMIs have averaged above 53.5 over the last six months of 2025. In contrast, Eurozone services have averaged around 51.5 over the same period. This fundamental gap supports short EUR/GBP positions, or derivatives that benefit if the pair falls. Create your live VT Markets account and start trading now.Commerzbank’s Baur says Australia’s strong jobs and 4.1% unemployment are tempered by weak wage growth, limiting AUD gains
Australia’s labour market is still strong. Unemployment is 4.1%, and 17,800 new jobs were added. This backs the Reserve Bank of Australia’s recent rate rise.
Wage growth is still weak, and low unemployment has not led to faster pay rises. Trimmed mean inflation in the last quarter was 3.4% year-on-year, so real wage growth in Q4 2025 was 0.
Outlook For RBA Policy And The Aussie Dollar
Commerzbank expects just one more interest rate increase from the central bank. It says current market pricing is too optimistic, which could limit further gains in the Australian dollar in the months ahead. Australia’s labour market looks very strong, and that should support the Aussie dollar. In late 2025, unemployment stayed at a historically low 4.1%, while the economy continued to add a solid number of jobs. This strength has kept expectations for more RBA rate hikes high. However, we remain cautious because low unemployment is not producing strong wage growth. Last quarter, wage growth was 3.4%, the same as trimmed mean inflation. That means real wage growth was zero. This is unlikely to create new inflation pressure. In our view, this points to only one more rate rise from the RBA. But interest rate swap markets are pricing in at least two more hikes by the end of 2026, which seems too optimistic. Because of this gap, the Australian dollar may have limited upside in the coming months.Derivatives Positioning Ideas
For derivatives traders, this suggests AUD/USD rallies may fade. One possible approach is to sell call options or take short positions on rebounds toward the 0.6800 level. Another option is to buy AUD puts with a strike below 0.6600, aiming to benefit if the market scales back its optimistic rate expectations. Create your live VT Markets account and start trading now.ING’s Warren Patterson and Ewa Manthey say gold is hovering near $5,000/oz, with further upside risks amid geopolitical reassessment
Gold is trading near $5,000/oz, close to record highs. It has recovered from recent volatility as markets reassess geopolitical risks and the broader macro backdrop. Prices remain highly sensitive to news on US-Iran talks.
Ongoing uncertainty around these negotiations is supporting gold. Wider geopolitical tensions are also driving steady demand.
