In the European session, the Eurozone Q2 GDP second estimate is released. However, this data is not very relevant for the market since the ECB has completed its easing cycle. A rate hike is more likely in 2026, unless something significant changes. During the American session, focus shifts to US PPI and Jobless Claims data. The US Core PPI Year-over-Year is expected to rise to 2.9% from 2.6%. For the Month-over-Month measure, a 0.2% increase is anticipated, up from 0.0%. Markets are particularly interested in components influencing the PCE calculation, with expectations of a 0.3% Month-over-Month and a 3.0% Year-over-Year rise in Core PCE.

US Jobless Claims Overview

US Initial Claims are forecasted at 228K, slightly above the previous 226K. Meanwhile, Continuing Claims may drop to 1,964K from 1,974K. These claims offer current insights into the labor market, revealing a trend of “low firing, low hiring.” As we approach the September NFP, attention will be on various labor data, including jobless claims, ADP figures, and employment indices from ISM reports. We are closely monitoring the upcoming US Producer Price Index as it indicates persistent inflation. Current data suggests that the core Personal Consumption Expenditures index, which the Fed tracks, is projected to show a 3.0% annual rise. This makes a rate cut by the Federal Reserve in the near future very unlikely. This is a significant shift from the cooling trend we observed throughout much of 2024 when core PCE was as low as 2.6% year-over-year. The recent uptick suggests that inflation may be more persistent than the market anticipated. Derivative traders should be prepared for the Fed to maintain its stance and possibly adopt a more hawkish tone. Steady jobless claims data reflects a balanced labor market, with initial claims around 230,000, aligning with figures from the past year. This “low firing, low hiring” condition indicates that the labor market is stable enough that the Fed is unlikely to cut rates, allowing officials to concentrate on combating inflation.

European Central Bank Policy Outlook

In Europe, there is little reason to expect major policy changes. The European Central Bank has completed its easing cycle, including rate cuts in 2024, and is now on hold. With a rate hike more likely in 2026 rather than another cut, the gap between US and European policies is widening. This divergence suggests a stronger US dollar against the euro in the coming weeks. Traders might consider using options on the EUR/USD pair to position themselves, possibly buying puts or setting up bearish spreads. A more hawkish Fed could also elevate stock market volatility, making long positions on the VIX index a potential hedge against sudden market shifts. Create your live VT Markets account and start trading now.

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