A soft jobs report has changed what we expect from the Federal Reserve. There’s now an 80% chance of a 0.25% rate cut in September. With Fed Governor Adriana Kugler resigning, President Trump might appoint a less aggressive replacement. This could influence the Fed’s decisions and put more pressure on Chair Jerome Powell. The firing of the Bureau of Labor Statistics head adds to the uncertainty around US economic data, which impacts markets like the dollar and Treasuries. This week, there will be $125 billion in Treasury note auctions, and we will closely watch how the markets react. US economic data is lighter this week, focusing on ISM services data and inflation. The dollar should continue to rise, although it may pause before dropping again. The Federal Reserve’s meeting in August could provide more clues about future actions. Futures markets now show an over 80% chance of a rate cut in September. This follows a disappointing jobs report from early August, which showed only 110,000 jobs added and increased the unemployment rate to 4.1%. We are looking into options on SOFR futures to prepare for lower short-term rates before the September FOMC meeting. Kugler’s resignation adds uncertainty, similar to what we saw in 2018-2019. This political factor could increase bond market volatility, as indicated by the MOVE index approaching 100. We might consider buying volatility through options, since changes in Fed personnel could lead to unexpected policy shifts. With doubts about the reliability of US economic data after the recent changes at the Bureau of Labor Statistics, we need to be cautious. The market could react unpredictably to upcoming inflation and employment figures, making short-term bets risky. The dollar index (DXY) has already fallen from above 107 as some forex traders become cautious. The $125 billion in Treasury supply this week will be a big test for the market. We’ll closely monitor the bid-to-cover ratios, especially since July’s auctions showed some weaknesses, with the 10-year note’s ratio dropping to 2.3. A poor response could push yields higher, so we are ready to use Treasury futures to hedge or speculate. Our immediate focus is on the ISM services data, which is expected to cool slightly to 52.5. This will help us gauge the economy’s strength. While the dollar might show some short-term strength, we anticipate it will stall, making options strategies that benefit from limited upside appealing. All attention will then shift to the Fed’s symposium starting August 21st for the next major policy signal.

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