In the European session, the second estimate of the Eurozone Q2 GDP is released. Despite its timeliness, this data holds little relevance for the market, as the ECB has completed its easing cycle. A rate hike appears more likely in 2026, barring any major changes.
In the American session, attention turns to the US PPI and Jobless Claims data. The US Core PPI Y/Y is anticipated at 2.9%, up from 2.6%, while the M/M measure is projected at 0.2% compared to 0.0% prior. Components that contribute to the PCE calculation draw market interest, with a Core PCE rise of 0.3% M/M and 3.0% Y/Y expected.
Us Jobless Claims Overview
US Initial Claims are predicted at 228K, slightly higher than the previous 226K, while Continuing Claims may decrease to 1964K from 1974K. Claims provide timely labour market insights, reflecting a “low firing, low hiring” trend. Leading up to the September NFP, focus will be on various labour data, such as jobless claims, ADP figures, and employment indices in ISM reports.
We are watching the upcoming US Producer Price Index very closely, as it points to stickier inflation. The data suggests the core Personal Consumption Expenditures index, which the Fed follows, is now tracking for a 3.0% annual increase. This makes a near-term Federal Reserve interest rate cut very unlikely.
This is a notable change from the cooling trend we saw throughout much of 2024, when core PCE fell to as low as 2.6% year-over-year. The current re-acceleration suggests inflation is more stubborn than the market had hoped. Derivative traders should anticipate that the Fed will remain on hold, and perhaps even sound more hawkish.
The steady jobless claims data confirms a balanced labor market, with initial claims hovering around 230,000, a level consistent with figures seen over the past year. This “low firing, low hiring” state means the labor market isn’t weak enough to force the Fed to cut rates. This gives officials a clear runway to focus exclusively on fighting inflation.
European Central Bank Policy Outlook
Meanwhile, we see little reason to expect any major policy shifts from Europe. The European Central Bank finished its easing cycle, which included rate cuts back in 2024, and is now firmly on hold. With a rate hike more probable in 2026 than another cut, the policy divergence between the US and Europe is growing.
This divergence points towards a stronger US dollar against the euro in the coming weeks. We believe traders could use options on the EUR/USD pair to position for this, potentially buying puts or establishing bearish spreads. A more hawkish Fed could also increase stock market volatility, making long positions on the VIX index a potential hedge against any sharp moves.
