The trading session has been quiet, with little news and no new economic data. Markets moved within narrow ranges. The US dollar and stocks saw slight increases, while gold experienced minor declines as we wait for the US CPI report. The European Central Bank (ECB) will announce a decision before the US releases its CPI and Jobless Claims data, but this is expected to have little impact. Most attention remains on the US CPI report and the ECB’s current pause on interest rates.

Upcoming US CPI and Jobless Claims Data

The upcoming US CPI and Jobless Claims numbers are important. The Core CPI year-over-year is expected to be 3.1%, while the Core month-over-month is projected at 0.3%. A weaker report could raise the chances of a 50 basis point rate cut to between 40% and 60%. If the CPI report is strong, it won’t change expectations for a 25 basis point cut in September, but it might lead to a slight increase in projections for 2026. Jobless Claims are expected to be 235,000, with continuing claims at 1.951 million. Jobless Claims data is a valuable indicator of the labor market, showing stability with low hiring and firing rates, backed by positive business surveys. Strong data paired with high CPI could result in more hawkish adjustments, while weak data might foster dovish expectations. While we wait for today’s important US CPI report, the dollar and stocks have edged up slightly, but these movements are minimal. The real reaction will occur after we receive the inflation data.

Main Focus on US Core Inflation

The key point is whether core inflation stays at 3.1%, as it did in the August 2025 report. After a significant drop in inflation throughout 2024, any indication that it isn’t continuing to decrease towards the 2% target will complicate the Fed’s job. This figure will heavily influence rate expectations for the remainder of the year. If the CPI number is weak, we can expect markets to quickly adjust to a higher chance of a 50 basis point rate cut this month. Traders could use short-dated options to benefit from a weaker dollar and rising bond prices. With the VIX currently low at around 14, it could drop further in a dovish scenario. Conversely, a strong inflation report likely won’t change the prospect of a 25 basis point cut in September, but it will alter the outlook for 2026. Traders should consider longer-dated derivatives, like options on 2026 SOFR futures, betting on fewer rate cuts than the three currently forecasted. This could indicate a “higher for longer” policy is becoming established. The US Jobless Claims data, released simultaneously, is a wildcard today. We’ve seen two soft Nonfarm Payroll reports in a row, with August 2025 showing only a 140,000 job gain. Any unexpected weakness in claims could amplify a soft CPI reading. This makes multi-leg option strategies, which can profit from increased volatility in either direction, a wise choice. If both the CPI and Jobless Claims are strong, the market could react sharply. This combination would suggest the economy is still too hot, leading to a significant hawkish adjustment of the Fed’s future path. In this situation, protective puts on major stock indices or calls on the VIX could be beneficial. Today’s ECB decision is largely seen as a non-event, with the bank in a pause as it waits for Eurozone inflation to ease from its current 2.8% level. Right now, US data is driving the market, especially for currency pairs like EUR/USD. The focus will be on how US rate expectations differ from Europe’s after today’s releases. Create your live VT Markets account and start trading now.

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