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[AllForexnews]

Date: 19th December 2025.

US Inflation Well Below Expectations! Fed Guidance About to Change?
 

An interesting week for investors, with safe haven assets and particularly metals, performing well. The best-performing assets were Palladium, Platinum, Silver and Gold, which are currently outperforming the Stock Market and the US Dollar. Analysts point towards lower inflation and the EU treading a fine line with Russia as the reason for the demand. From the currency market, the US Dollar is the best performing, while stocks have had their worst week of the month.

Though key events have taken place throughout the week which may indicate this may not be a continuing trend. These include the US inflation rate, Bank of England Rate Decision and Oils renewed decline.
 

US Inflation Rate (CPI)

On Thursday afternoon, the US made public its Consumer Price Index for the first time since October 2025. Economists were expecting inflation to rise, as it has done throughout 2025. Nonetheless, the expectations were again incorrect, and inflation actually fell from 3.00% to 2.7%. Analysts deem this to be significantly lower than expectations and can potentially change the guidance they have set for the market.

With the inflation reading 0.4% lower than previous predictions analysts are contemplating whether the Federal Reserve will maintain its hawkishness. Fed indicators such as the Fedwatch Tool and the Fed Dot Plot show no major changes. These indications continue to point to only two rate cuts in 2026 and none for January.

However, with inflation falling to a much healthier level and losing its ‘stickiness’ the market view is likely to change. Considering this is the key requirement for the Federal Reserve, it is possible and many analysts have already spoken about earlier or more frequent cuts. According to the market view the Federal Reserve will either cut another 0.25% basis points in January or will be forced to make frequent cuts thereafter.

As a result, the stock market potentially may find support particularly as institutions look to take advantage of the slight discount in price. Currently, this morning the S&P 500 has risen 0.28% and the NASDAQ 0.60%. In addition, the VIX index is trading 0.75% lower which points towards a ‘risk-on’ sentiment.


 

HFM - S&P 500 15-Minute Chart


Technical analysts also note that the bullish price momentum has risen as the European Session edges closer. If the price momentum is maintained or rises above $25,155.15 (NASDAQ), buy signals potentially may continue to materialise.
 

Other Global Developments

The US is not the only one making headlines this week. Major Central Bank decisions are also stealing the spotlight. A key decision came from the Bank of England, where interest rates were cut by 25 basis points to 3.75%. The Monetary Policy Committee vote was narrowly split, with five members supporting the cut and four opposing it.

In its statement, the BoE said inflation remains above target but will return to 2.0% faster than previously forecast, and stressed that future easing will depend on the inflation outlook. Looking ahead, the BoE is likely to maintain a dovish tone, while Morgan Stanley forecasts three rate cuts in 2026. According to Morgan Stanley these adjustments are likely to come in February, April, and June.

In contrast, the Bank of Japan chose to increase interest rates to 0.75% in order to tackle rising inflation and wages. However, even with the rate hike, the Bank of Japan’s main rate remains lower than economists’ earlier expectations from the start of 2025. In addition, the BoJ governor, Ueda, maintained a neutral tone, not indicating any imminent further hikes. As a result, the Japanese Yen along with the British Pound remain under pressure.
 

Key Takeaways:

• Precious metals outperformed stocks and the US Dollar as investors sought safe havens amid easing inflation and geopolitical uncertainty.
• US inflation fell to 2.7%, well below expectations, challenging the Federal Reserve’s hawkish policy outlook. Monetary Policy Tools maintain their hawkishness but are likely to change.
• Markets increasingly expect earlier or more frequent Fed rate cuts, despite official projections still showing only two cuts in 2026.
• US equities showed early recovery signs as volatility fell and risk-on sentiment returned, supported by improving technical momentum.
• Diverging central bank policies pressured the pound and yen as the BoE cut rates and the BoJ stayed cautious.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

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Michalis Efthymiou
HFMarkets

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