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UBS expects the Federal Reserve to make consecutive rate cuts due to rising job market concerns.
UBS expects the Federal Reserve to cut interest rates four times in a row, starting in September, totaling 100 basis points. This prediction is based on inflation staying low and growing risks in the job market.
UBS believes the Fed will use its upcoming policy meetings to start these rate cuts because inflation is cooling and job demand is decreasing. In July, core inflation was 2.9% year-on-year, while headline inflation remained at 2.6%.
Price pressures seem under control. Lower energy prices and steady goods inflation are helping balance out rising service costs. UBS predicts that unemployment rates will rise above the natural rate by the end of the year and will stay high through 2027.
Fed officials, including Chair Jerome Powell, have become more supportive of rate cuts. During the July meeting, two members voted for a cut, and Vice Chair Williams and Governor Waller have indicated they are open to a cut in September.
UBS concludes that since inflation is close to the target and employment issues are growing, the Fed is likely to start easing at its next meeting. Rate cuts are expected in four upcoming meetings, scheduled for late 2025 and early 2026.
With the Federal Reserve’s meeting on September 17th just over two weeks away, markets are already preparing for the easing cycle. The CME FedWatch Tool shows an 85% chance of a 25-basis-point cut this month. This suggests a strategy for trading based on falling interest rates, such as buying options on Secured Overnight Financing Rate (SOFR) futures.
This expectation is impacting Treasury yields, with the 10-year note around 3.8%. If the Fed goes ahead with the cuts, yields may drop further, leading to higher bond prices. This scenario is similar to what happened in 2019, when a Fed pivot caused a strong rally in Treasury futures.
A weaker dollar is likely if rate cuts continue, making non-U.S. currencies more appealing. The euro, currently about 1.0900 against the dollar, is expected to strengthen. We suggest buying long EUR/USD call options to target a move toward 1.1100 in the coming months.
For equity markets, this shift toward dovish policies is beneficial since lower borrowing costs can boost corporate earnings and investments. The S&P 500 is currently near 5,600 and could gain more momentum if the Fed signals clear easing plans. Buying call options or long futures contracts on major stock indices seems promising in the weeks ahead.
Lastly, watch for volatility leading up to the September meeting. The VIX is currently at a moderate 16, but we expect implied volatility to increase as traders speculate on the Fed’s decision. This could create a short-term trading opportunity with VIX futures or options that profit from the uncertainty before the announcement.
Dolenc believes the ECB has stopped lowering rates due to stable inflation and decreased trade uncertainty.
The European Central Bank (ECB) has likely finished lowering interest rates, according to Primoz Dolenc, Slovenia’s acting central bank governor. He mentioned that the ECB believes its current policy is suitable for reaching its inflation goal, with no new information changing this view from the July Governing Council meeting.
Decreased uncertainty has played a role, especially after the European Union secured a trade deal with the United States. This deal set a 15% tariff on most exports, slightly higher than earlier predictions but not likely to impact growth and inflation much.
The ECB kept interest rates steady in July after a series of cuts over the past year. It is expected to maintain this approach, with no new cuts anticipated soon. The next ECB meeting is set for September 10-11, and markets show no expectation of further cuts this year.
With the ECB indicating an end to interest rate cuts, we need to reevaluate our interest rate strategies. For example, any bets on short-term rate decreases, like holding long positions in EURIBOR futures, should be reconsidered. The focus now is on a stable policy environment, making it a good time to explore trades that benefit from steady rates.
This perspective is supported by recent inflation data released at the end of August 2025, showing that headline inflation is at 2.1%, just above the ECB’s target. More importantly, core inflation has stubbornly remained at 2.4%, giving policymakers little reason to cut rates further. Market pricing reflects this, indicating less than a 10% chance of another cut this year.
The certainty around ECB policy and the new US trade agreement has been beneficial for the Euro. The EUR/USD exchange rate has risen from about 1.08 in early July to over 1.11 in the last week. We should think about strategies involving derivatives that profit from a stable or strengthening Euro, especially since the interest rate gap with the US is not widening.
This decrease in uncertainty has also reduced volatility, with the VSTOXX index falling below 15 for the first time since May 2025. This creates a favorable environment for selling options to generate income, as unexpected policy changes seem less likely. Selling strangles on equity indices or bond futures could take advantage of this calm period.
Remember the time after the ECB paused its aggressive rate hikes in late 2023? The market was very sensitive to individual data points for months. So, while the main policy direction is clear, we should expect short-term volatility around upcoming inflation and employment reports. These events will create key opportunities for tactical trades in the coming weeks.
Weaker nonfarm payrolls could lead to rate cuts by the Fed, says MUFG Bank’s Lee Hardman
The US dollar could face new challenges if the upcoming US payrolls data falls short of expectations. This might lead to a greater chance of a Federal Reserve rate cut in September. A disappointing nonfarm payrolls report could support the idea of a potential 50-basis-point rate cut during the Fed’s meeting on September 17.
Right now, markets predict a 25-basis-point cut this month and over 100 basis points of easing by September 2026. Only a strong jobs report might change the Fed’s decision on rate cuts next month. The nonfarm payrolls report is scheduled for release on Friday, September 5, at 8:30 am US Eastern time.
As we await the crucial Nonfarm Payrolls (NFP) report this Friday, September 5th, we’re looking for signs of a slowing labor market. A disappointing jobs figure would likely confirm a Federal Reserve rate cut on September 17th, potentially even a larger cut of 50 basis points. This would put significant downward pressure on the US dollar.
Job growth has been declining over the past year, and the July 2025 report was revised down to just 141,000 jobs. The market expects a modest increase of 150,000 for August, so any number under 120,000 would be seen as a major miss. This would strengthen the view that the economy is slowing, as shown by weaker ISM manufacturing data from last month.
The fed funds futures market predicts a 92% chance of a 25-basis-point cut this month. This outlook increased after the July CPI inflation reading showed a low 2.7%. Since a cut is widely anticipated, the key question is how large that cut might be and how the market will react. Looking back to 2019, a similar Fed pivot led to a long rally in stocks and a weaker dollar.
Traders should prepare for increased volatility in the US dollar. Buying put options on the US Dollar Index (DXY) that expire after the Fed meeting could provide a way to benefit from a drop in the dollar while keeping risk low. Or, traders could consider going long on call options in currency pairs like EUR/USD or GBP/USD for similar exposure.
For those focused on interest rates, purchasing call options on Treasury bond futures (like the ZN or ZB) is a direct way to profit from falling yields in response to a weak jobs report. These contracts would gain value if the market expects more aggressive and prolonged rate cuts from the Fed. A disappointing jobs number would likely lead to a sharp drop in the 2-year Treasury yield.
On the other hand, if the jobs report comes in stronger than expected—perhaps over 225,000—it could undermine the rate-cut narrative and cause a brief spike in the dollar. To hedge against this possibility, buying inexpensive, out-of-the-money put options on major stock indices could be a smart move. If the Fed has to delay rate cuts, it could trigger a sell-off in stocks.
The upcoming Asian economic calendar looks sparse, with little expected to affect market movements.
The Asian economic calendar for September 2, 2025, shows a light schedule with little data expected to influence the markets.
Australian inflation data, coming out at 0100 GMT from the TD-MI survey, is projected to be -0.3% month-on-month, down from +0.9% last month. The year-on-year rate is expected to be 2.8%, slightly less than the previous 2.9%.
Inflation Outlook For Australia
We’re getting a preview of Australian inflation, and it seems to be dropping faster than expected. This private survey indicates that prices have actually decreased from last month, bringing the annual rate down to 2.8%. This is important because it brings inflation back into the Reserve Bank of Australia’s (RBA) target range for the first time in years. The RBA has kept the cash rate at 4.35% for most of 2025, waiting for clear signs of price declines. This new number reduces the chances of another rate hike. Traders should expect a shift in market pricing, likely leading to an increase in interest rate futures as they bet on rates remaining lower for an extended period. We saw a similar trend beginning in late 2023 when the markets started to anticipate the end of the global interest rate hikes.Impact On The Aussie Dollar
This outlook isn’t favorable for the Aussie dollar. Lower interest rate expectations make it less attractive. We can expect downward pressure on the AUD/USD, which has struggled to gain ground since the Q2 2025 inflation report showed a headline rate of 3.4%. Therefore, buying put options on the AUD could be a good strategy to prepare for a potential drop in the coming weeks. With the next RBA meeting still a few weeks away, this data removes a key uncertainty from the market. This will likely reduce the implied volatility of Australian interest rate derivatives. Traders might see this as a chance to sell options, such as out-of-the-money calls on bond futures, to earn premiums as the market stabilizes into a more predictable, hold stance. Create your live VT Markets account and start trading now.Bessent believes the Supreme Court will likely support Trump’s tariffs, despite objections.
US Treasury Secretary Bessent is confident that the Supreme Court will maintain Trump’s tariffs. He mentioned that there are other laws that could justify tariffs, but these are not as effective. Progress is being made with Europe regarding India’s purchases of Russian oil. He referred to a meeting in Shanghai hosted by China as merely ‘performative’.
Bessent accused India and China of aiding Russia’s actions in Ukraine by supplying resources. He previously suggested that Miran is likely to join the Federal Reserve Board before the September meeting. Additionally, he noted that Lisa Cook has not denied allegations of mortgage fraud.
Supreme Court Tariff Case
The situation around tariffs involves a US Federal Appeals court ruling that found many of Trump’s tariffs illegal. This has created a ‘tariffs quagmire’, which remains a significant issue as the week starts, with an appeal process underway. The upcoming Supreme Court case adds a lot of uncertainty, which could cause increased market volatility in the next few weeks. For reference, the VIX index had surged 15% in a single day in late 2024 when the first appeals court ruling was announced. It is wise to hedge equity exposure with index options until there is legal clarity. This trade conflict is likely to keep the US dollar strong, making it a safe-haven currency and putting more pressure on the Chinese yuan. The yuan has already fallen past 7.40 against the dollar this summer, and the continuing political discussions will only worsen its situation. We are considering derivatives that could profit from ongoing volatility in the USD/CNY exchange rate.Impact On Oil And Interest Rates
We need to monitor the increasing pressure on India regarding its purchases of Russian oil closely. India has been importing more than 2.1 million barrels per day this year, so any disruptions from US or European actions could lead to a sharp rise in crude oil prices. We are looking at long positions in WTI and Brent crude oil futures to prepare for this risk. With Miran likely joining the Fed before the September meeting, the outlook for interest rates is changing. The market now anticipates a higher chance of a rate hike or a more aggressive policy statement. Pricing in the SOFR futures market has already moved to suggest a 45% chance of a hike this month, up from just 20% last week. Lastly, public criticism of a sitting Fed governor adds a troubling political dimension to monetary policy. This undermines the institution’s credibility and could lead to unpredictable market reactions, especially in the banking sector. We think this justifies buying protective put options on financial sector ETFs to hedge against this instability. Create your live VT Markets account and start trading now.Bessent is confident the Supreme Court will uphold Trump’s tariffs despite earlier rulings against them.
US Treasury Secretary Bessent expressed confidence that the US Supreme Court will support Trump’s tariffs in an interview with Reuters. He recognized other legal reasons for tariffs but deemed them less effective. Bessent highlighted improvements in US-European relations, especially regarding India’s purchases of Russian oil, and characterized a recent gathering of non-Western leaders in Shanghai as ‘performative.’ He also accused India and China of backing Russia in the Ukraine conflict.
Bessent predicted a strong chance that Miran will join the Federal Reserve before the September meeting. He mentioned Lisa Cook, noting she hasn’t denied allegations of mortgage fraud. Regarding tariffs, Bessent referred to a recent ruling from a US Federal Appeals Court that found most of Trump’s tariffs illegal, which is expected to be challenged.
With the Supreme Court yet to make a decision on tariffs, there’s a clear indication for a long volatility strategy. The uncertainty from the appeals court ruling and Bessent’s optimism creates a ripe environment for price fluctuations. The CBOE Volatility Index, or VIX, has risen to 18.5, and we anticipate it may reach the mid-20s as the court’s decision approaches.
The administration’s labeling of India and China as “bad actors” points to ongoing geopolitical risks that may affect emerging markets. We observed a similar situation in 2019 when tariff increases caused the iShares MSCI Emerging Markets ETF (`EEM`) to drop by 10% over two months. Purchasing protective put options on `EEM` or specific ETFs focused on China appears to be a wise hedge against any escalating tensions.
Uncertainty at the Federal Reserve adds another aspect for traders to monitor ahead of the September meeting. Miran’s potential appointment might disrupt the board’s consensus, making interest rate decisions harder to predict. The CME FedWatch tool now indicates that futures markets are considering a broader range of possible outcomes for the next meeting compared to a month ago, signaling that traders should prepare for surprises.
For those interested in certain sectors, the outcome of the tariffs will directly influence the industrial and technology supply chains. Options on steel and aluminum ETFs, such as `SLX` and `XME`, are likely to see increased volume and implied volatility. Reflecting on the period from 2018 to 2022, we note that companies dependent on Chinese components lagged behind the broader S&P 500 by up to 15% during times of heightened trade tensions.
Amid reduced trading, precious metals thrive: silver hits a fourteen-year high and gold increases.
On September 1, 2025, North American markets saw little activity due to the US/Canadian holiday. WTI crude oil rose by 68 cents to $64.61, and S&P 500 futures went up by 0.2%. Gold prices surged $30, reaching $3476.
In the currency market, the British pound led, while the Japanese yen lagged behind. A US court ruling that blocked Trump’s tariffs had little effect, as market participants seemed cautious and adopted a ‘wait and see’ approach. The New Zealand dollar made some gains, and the euro continued its steady upward trend.
Precious Metals Surge
Precious metals were the standout performers, with silver hitting a 14-year high. Gold has increased for five straight days, now just $25 shy of a record high of $3501 set earlier this year. Political unrest in the UK and France didn’t impact the euro’s upward movement. Market news was sparse, partly due to the holiday. Trump’s tweets about Covid vaccines and US-India trade didn’t influence the markets. However, there is speculation about his health, as he has been less visible recently. The rise in precious metals is the most significant takeaway from today’s quiet trading. With gold at $3476, buyers can look at call options on gold and silver ETFs to take advantage of this momentum, especially since last week’s CPI data showed core inflation steady at 4.1%. Silver’s climb to a 14-year high is particularly exciting, approaching levels last seen during the 2011 commodity boom. Strong industrial demand backs this, with reports showing a 15% year-over-year increase in silver consumption in the green energy sector. Traders might want to consider bullish positions through futures contracts to take advantage of this strength.Market Volatility Expected
The current calm in the equity market is likely temporary due to the court ruling on tariffs. A similar pattern occurred during the trade disputes of the late 2010s, where initial court decisions sparked brief but sharp volatility. Given this uncertainty, buying straddles or strangles on major index ETFs can be a smart way to profit from potential market movement. Implied volatility readings suggest a significant market move is coming. The VIX index is currently at a relatively low 15, but options pricing indicates that traders anticipate it could rise to 25 in the next 45 days. Purchasing VIX call options offers a cost-effective way to hedge against potential political or legal surprises. In the foreign exchange market, the difference between British and Japanese monetary policies presents a clear opportunity. The Bank of England’s recent hawkish stance supports the pound, while the Bank of Japan maintains its ultra-loose policy. Long GBP/JPY options or futures could be a good way to benefit from this widening policy gap. Create your live VT Markets account and start trading now.Bessent says Miran is likely to vote at the upcoming Fed meeting
Bessent shared insights in his second interview with Semafor, suggesting that Miran is likely to be a voter in the upcoming September FOMC meeting.
He also revealed plans to prepare a brief for the U.S. solicitor general to back Trump’s tariffs.
Miran’s Decision On Interest Rates
If Miran decides to keep interest rates steady in September, it would be surprising. There’s buzz about Miran being a new voter at the September FOMC meeting. He may vote to hold rates steady, which is important because the Fed Funds futures show a 70% chance of a 25 basis point rate hike following the August CPI report of 3.4%. A surprise decision to hold rates would surprise many in the market. This uncertainty makes buying volatility appealing in the coming weeks. The MOVE index, a measure of bond market volatility, has risen from its low of 95 this past summer. Investing in short-dated options on SOFR futures could be a smart way to protect against unexpected Fed decisions. The recent talks about tariffs add more complexity. Historically, like in 2018-2019, broad tariffs can increase inflation pressure, making it harder for the Fed to take an easy stance. This could create confusion if there’s a new dovish member, which might lead to fluctuations in currency pairs like USD/JPY.Official News On Fed Governor Confirmation
Right now, we should pay attention to any updates about Fed governor confirmation hearings. The market is leaning toward one more rate hike this cycle, a belief supported by Fed Chair Powell’s hawkish comments at the Jackson Hole symposium last month in August 2025. If credible news arises that Miran will join as a voting member, we will need to reassess our rate strategies immediately. Create your live VT Markets account and start trading now.Silver reaches a 14-year high due to weak dollar and gold market speculation.
Silver prices jumped nearly 4% today, reaching $41.22 per ounce, the highest level since September 2011. Recently, prices rose from $30 to $40, similar to when silver climbed from $18 to $50 in the past.
The same factors driving gold prices up are also boosting silver. Increased industrial demand is a significant contributor. Key influences include a weakened US dollar and worries about possible destabilizing actions by the Trump administration that could affect the Federal Reserve’s operations.
However, historical trends show that September is usually not a strong month for silver, so prices might dip. If you’re considering investing in silver, it’s wise to think about this seasonal pattern before making a move.
Silver has now reached a 14-year high above $41, a level not seen since the 2011 price surge. This increase is largely due to the declining US dollar, which has fallen nearly 4% since July 2025. Political uncertainty, especially regarding the administration’s recent comments about the Federal Reserve’s rate policy, is adding to this momentum.
We remember the 2011 price surge when silver jumped from under $20 to nearly $50 within a year. History suggests this kind of rapid increase could continue, especially if silver breaks past its old high. Traders focusing on derivatives might see this as a chance to take long positions, anticipating that those who missed the gold rally will now invest in silver.
In addition to currency concerns, genuine industrial demand is also contributing to the rise. Demand from the photovoltaic sector is expected to grow by 15% this year as green energy initiatives gain traction. This creates a stronger price support compared to the 2011 surge.
However, caution is necessary since September is traditionally a weak month for silver prices. The sharp decline after the April 2011 peak, which saw prices fall by half within months, serves as a warning for overly optimistic investors. A sudden price drop in the coming weeks is a genuine risk.
With current high volatility, buying outright call options can be pricey. Traders might consider bull call spreads to target a rise toward $45 or $50 while managing costs. Additionally, buying some out-of-the-money puts could be a cost-effective way to protect long futures or physical silver positions against a rapid downturn.
September is historically a challenging month for stock markets, negatively impacting gold and risk assets.
In September 2022, the S&P 500 made an uncommon gain of 2%, which is unusual for this month. Historically, September has been the worst month for the index since 2000. Major events, like the financial crisis in 2009 and the return of policymakers from summer breaks, often cause market disruptions. Additionally, many investors like to secure profits before the year’s end.
