Economic Events and Expectations

This week highlights two key events: the US inflation report on Tuesday and a meeting between US President Donald Trump and Russian President Vladimir Putin on Friday. The core CPI for July is expected to rise by 0.3% from the previous month and 3.0% over the year, which is likely to support a Federal Reserve rate cut in September, with a 90% chance priced in. A prediction of a 0.4% monthly rise in core CPI might change how the data is interpreted, but it is not likely to impact the chances of a rate cut. The US Dollar may get temporary support from Tuesday’s CPI release, but this could lessen as other economic indicators reveal weaknesses in the labor market and overall activity. For the US-Russia summit, there is an expectation that Putin will try to gain concessions from Ukraine regarding a ceasefire. Trump has leverage through potential sanctions and economic pressure on Russia’s trade partners. Crude oil prices have decreased by 8% since August, showing cautious optimism about a possible truce, while Ukraine’s 10-year bonds have rallied by 2%. This week’s economic data—like the NFIB survey, PPI data, and retail sales—along with communication from the Federal Reserve, will be important for the dollar. Markets are likely to remain quiet before the CPI report. We are now observing the long-term impacts of events from last summer. Looking back at 2024, the mild inflation data did pave the way for the Federal Reserve to cut interest rates in September. This shift away from strict policy has shaped our current market environment.

Market Shifts and Volatility

The summit between Trump and Putin led to a fragile ceasefire, which temporarily calmed the markets, similar to the initial 8% drop in crude prices at that time. However, that truce is now weakening as disputes over Black Sea grain shipments take center stage. As a result, WTI crude has rebounded strongly in 2025, nearing $85 a barrel. The situation has dramatically changed, as the easier inflation comparisons are now over. Core CPI for July 2025 has risen to a strong 0.4%, raising the annual rate and challenging the Fed’s more relaxed approach. This has pushed the US Dollar Index (DXY) to about 106.5, a six-month high, causing ripples in equity markets. With this renewed uncertainty, volatility is a key focus. The VIX index has risen from summer lows of 15 to around 19, and we anticipate it may continue to climb as the market evaluates the Fed’s next steps. We believe that buying call options on the US dollar is a smart way to hedge against a more aggressive Fed stance. As geopolitical tensions rise again, the fragile ceasefire established last year is now a significant factor in oil market volatility. The market is anxious, and any escalation could lead to a sharp price spike from these already high levels. This uncertainty makes long straddles on crude oil futures an intriguing strategy, betting on a major price movement in either direction. Create your live VT Markets account and start trading now.

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