The Eurozone Flash CPI report is out today. It is expected to show a 2.0% yearly increase, similar to last month’s figure. The Core CPI might drop slightly from 2.3% to 2.2%. The European Central Bank (ECB) seems to have finished cutting rates and may consider raising them, as indicated by recent statements. Markets are only anticipating a small 6 basis points of rate easing by the end of this year and 15 basis points by late 2026, meaning significant shifts would need strong justification. In the US, attention will turn to the ISM Manufacturing PMI, which is projected to rise to 49.0 from the previous 48.0. Recent figures from S&P Global show strength in US PMIs, which leans towards raising rates instead of cutting them. Economic momentum and rising inflation push these expectations higher. Later this week, the focus will be on the NFP report. Sentiment leading up to Friday’s data will be influenced by the ISM and ADP reports, so it’s essential for market participants to keep a close watch. Today’s Eurozone inflation data is likely to confirm that headline CPI remains at 2.0%. This stability provides little reason for the ECB to change its approach. German services inflation for August 2025 has recently surged to 3.5%, indicating that price pressures are not easing as fast as anticipated. If CPI numbers surprise to the upside, it could strengthen the ECB’s tough stance. This situation means that derivatives traders should be careful about predicting any rate cuts for the euro. The ECB stopped its rate cuts in late 2024, and the current market expectations show less than a 25% chance of any cuts before mid-2026. Given this scenario, volatility options like straddles on EUR/USD may be worth considering if inflation comes in significantly higher due to a shift in ECB policy. Later today, we’ll also look at the US ISM Manufacturing PMI. It is expected to inch up to 49.0. However, the S&P Global PMI reading for August already showed a stronger 51.2, so we might see a surprise that hints at a robust US economy. A reading above 50.0 would indicate economic growth and likely push Treasury yields up. This reinforces the idea that the Federal Reserve is not thinking about rate cuts, especially with the latest Core PCE inflation figure for July 2025 at a stubborn 2.9%. Fed funds futures have shifted this summer, now suggesting a 40% chance of a rate hike by year-end. Traders might want to prepare for a stronger dollar, as positive economic data would support the Fed’s tough stance. Ultimately, this week’s direction will rely on Friday’s NFP report. Last week’s JOLTS report showed an unexpected rise in job openings, indicating that the labor market isn’t slowing down enough for the Fed. Today’s ISM employment component will be an important preview of what we can expect from the main jobs report.

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