The ISM Manufacturing Employment Index in the United States fell to 43.4 in July from the previous 45. This decline suggests weakening employment conditions in the manufacturing sector.
The EUR/USD exchange rate climbed above 1.1550 after weak US Nonfarm Payrolls and ISM Manufacturing PMI data. Likewise, GBP/USD saw an upswing, rising above 1.3250, reversing losses experienced over the past six days.
Gold Reaches New High
Gold reached a weekly high of around $3,350 as US Treasury bond yields decreased. The drop in yields has prompted markets to reassess the Federal Reserve’s interest rate outlook following poor employment data.
Meanwhile, the cryptocurrency market faces challenges, with Bitcoin descending below $115,000 amid increased liquidations. The euro area’s economy is showing robustness, bolstered by a recent EU-US agreement and increased German spending.
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With today’s weak US jobs report, we see a clear signal of economic slowing. The addition of only 95,000 jobs in July 2025, well below the 180,000 expected, confirms the trend seen in the falling ISM Manufacturing Employment Index. This strengthens our view that the Federal Reserve will pause its rate-hiking cycle, and we believe markets are now pricing in a 65% chance of a rate cut before the end of the year.
Interest Rate Derivatives Outlook
This outlook makes interest rate derivatives particularly interesting in the coming weeks. We are looking at buying Secured Overnight Financing Rate (SOFR) futures, which increase in value as expectations for future interest rates fall. Looking back, we saw a similar pattern in 2019 when the Fed pivoted to rate cuts amid slowing manufacturing, a move that proved highly profitable for those positioned correctly in rate futures.
The divergence between the US and European economies is becoming more apparent. The euro area’s strength, supported by recent German industrial production figures that showed an unexpected 0.8% rise, makes the euro attractive against the weakening dollar. We believe buying EUR/USD call options is a prudent way to gain exposure to further upside above the current 1.1550 level while strictly defining our risk.
We are also observing a classic flight to safety, where capital flows out of riskier assets and into traditional havens. Gold’s rally toward $3,350 an ounce is being fueled by falling US Treasury yields, and we will consider adding to long positions through futures contracts. In contrast, Bitcoin’s slide below $115,000 suggests traders are reducing exposure to speculative assets, making put options a viable strategy to hedge or profit from further declines.
This broad economic weakness is likely to weigh on corporate earnings and equity markets. The downturn in manufacturing and employment is a leading indicator for the broader S&P 500. Therefore, we are considering buying put options on major US indices to hedge our portfolios against a potential market correction in the near term.
