During the European morning session on August 26, 2025, trading was quiet due to a lack of significant news or data. Markets remained in a tight range as traders awaited US labor market data, which is expected to impact interest rate expectations. One noteworthy event was Trump’s attempt to remove Fed Governor Cook, but he does not have the authority to do so. Legal views indicate that this attempt is unlikely to succeed because the accusations against Cook date back to before her nomination, which means there’s no valid reason for her dismissal. Additionally, a past Supreme Court decision restricts the President’s ability to dismiss Fed officials. Cook has stated she will not resign, showing her confidence in her position.

Focus Shifts to US Labor Market Data

Attention is now turning to the upcoming US labor market data, particularly the non-farm payroll report next week. This report is expected to significantly influence interest rate expectations and market movements, especially given the current lack of other influential factors. The market is currently in a narrow range, which is understandable due to the absence of major economic news. Implied volatility for key currency pairs like EUR/USD has fallen to multi-week lows, with some one-week options pricing close to the 5.5% level. Traders are waiting for a clear signal from the US labor market before making any significant moves. The political drama surrounding the attempt to remove Governor Cook is being largely ignored by the markets. Traders have become used to similar risks and view them as distractions from the real economic issues. We remember how quickly markets reacted back in 2018-2019 to political pressure on the Fed, which turned out to be short-lived.

Upcoming Non-Farm Payroll Focus

Next week, our main focus will be the US Non-Farm Payrolls (NFP) report. Last week, jobless claims slightly increased to 235,000, indicating some potential slowdown, but the market needs a clear figure. The consensus forecast for the NFP is around a gain of 180,000 jobs, a number that would likely keep the Fed from making any changes. For derivative traders, this calm period offers a chance to prepare for the expected rise in volatility. Buying straddles or strangles on major pairs like USD/JPY ahead of the NFP report could be a good strategy to benefit from potential price swings in either direction. Current low implied volatility makes the cost of entering such positions quite appealing. A much stronger-than-expected NFP number, perhaps above 220,000, could push rate cut expectations further into the future, strengthening the dollar and making put options on EUR/USD profitable. On the other hand, a weak reading below 150,000 might reignite hopes for a near-term rate cut, leading to a notable sell-off of the dollar and benefiting call option holders. Create your live VT Markets account and start trading now.

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