The USD began the US trading week lower due to the August 2025 jobs report. This report showed a slowdown in hiring, with only 22,000 new jobs added and the unemployment rate rising to 4.3%. Job losses occurred in manufacturing, construction, and government sectors, while healthcare, retail, and leisure saw some gains. The average for nonfarm payrolls over the last three months is around 29,000, a considerable drop from the 12-month average of approximately 122,000. In response, Treasury yields fell, and equities and gold rose as the USD weakened. Futures indicate almost certain expectations for a 25 basis point rate cut by the Fed on September 17, influenced by upcoming CPI and PPI data. When comparing the USD to major currencies, the results were mixed: JPY +0.24%, EUR -0.11%, GBP -0.20%, CHF -0.34%, CAD -0.22%, AUD -0.56%, NZD -0.75%. In Japan, Prime Minister Shigeru Ishiba resigned after electoral losses, leading to political and market changes.

Economic Indicators and Market Performance

Key data releases to watch include the PPI and CPI, while the ECB is likely to keep rates unchanged. US stock indices started the week on an upswing, with the S&P, Dow, and NASDAQ increasing. Yields in the US debt market dropped, and commodities like crude oil, gold, and silver rose. Bitcoin also gained, increasing by $852 to close at $110,669 on Friday. The weak jobs report makes a Fed rate cut on September 17 almost certain. A similar significant cooling in the labor market happened in late 2019, leading the Federal Reserve to start a cycle of easing that traders expect now. It’s wise to prepare for lower interest rates by using options that will benefit from expected declining yields in the coming weeks. This shift makes the US dollar less appealing fundamentally, and this trend is already seen in its broad decline. Using the CME FedWatch Tool, over a 95% chance of a 25-basis-point cut is currently priced in, which will likely continue to affect the dollar. Options to bet against it, such as buying calls on AUD/USD or EUR/USD, seem attractive.

Inflation and Fed Policy

However, we should pay attention to this week’s CPI inflation report, which poses a risk. The persistence of inflation in 2023 kept central banks aggressive, and if the report shows a surprising increase of 0.4% or more, it could complicate the Fed’s decisions. A volatility strategy, such as an options straddle on the S&P 500, might be a smart move to trade around the data release. Gold has hit a new record high, driven by lower bond yields and expectations of cheaper money. This surge is similar to the rally we saw in 2024, which was also fueled by prospects of Fed easing and geopolitical tensions. We can take advantage of this by using call options on gold futures to secure profits while managing the risk of a price reversal. In Japan, the Prime Minister’s resignation adds uncertainty that could impact the yen. While the yen is stronger today, such political instability often leads to currency weakness in the medium term as investors await clear policies. A wise move would be to consider longer-dated call options on the USD/JPY pair, betting against the recent strength of the yen. Create your live VT Markets account and start trading now.

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