Today, a few ECB speakers will be in the spotlight. ECB’s Schnabel will share her views during the European session. She has a neutral to hawkish stance and noted that current rates are slightly accommodative. She also warned that inflation risks might increase, and rate hikes could happen sooner than expected. In the American session, we will see data on Canadian manufacturing sales and the NY Empire Manufacturing PMI. These reports are considered less important and can be volatile, so they likely won’t have a big impact on the markets. ECB President Lagarde will speak later in the evening, but she’s not expected to reveal new information since she covered key points in last week’s monetary policy press conference.

Spotlight on Timiraos

Keep an eye on Timiraos from the WSJ, who might release an article about the Federal Reserve before Wednesday’s decision. If the article mentions the FOMC considering a 50 basis points cut, it could raise expectations for a significant policy change. Today appears to be a quiet session, with the market focused on the Federal Reserve’s decision this Wednesday. The CBOE Volatility Index (VIX) has risen to around 19, indicating rising uncertainty before the meeting, suggesting that traders are buying protection and options premiums are increasing. We are closely monitoring any indications of a 50 basis point rate cut, which would be bolder than many anticipate. This idea is gaining support because the August 2025 jobs report showed hiring slowed to 150,000, and the latest CPI inflation figure fell to 2.8%. According to the CME FedWatch Tool, there’s currently about a 30% chance of this bigger cut.

Fed and ECB Divergence

While we expect a potentially dovish Fed, the European Central Bank is following a different direction. ECB speakers like Schnabel continue to indicate that rate hikes could happen sooner than expected, highlighting a clear policy divergence. This difference could support the EUR/USD pair in the coming weeks. We’ve seen similar situations before, such as during the 2019 policy shifts when the Fed began easing while other central banks stayed firm. Purchasing short-dated call options on equity indices might be a good strategy for positioning against a dovish surprise from the Fed. However, since implied volatility is rising, these positions should be sized with care. Create your live VT Markets account and start trading now.

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