During the European morning session on 26 August 2025, the absence of data or important news resulted in uneventful trading with markets remaining rangebound. Market participants are awaiting US labour market data, expected to influence interest rates expectations.
A notable event was Trump’s attempt to dismiss Fed Governor Cook, although he lacks the authority to execute such an action. Legal opinions suggest this move is unlikely to succeed as the alleged fraud linked to Cook predates her nomination, removing grounds for a “for cause” dismissal. Additionally, a previous Supreme Court ruling limits the President’s power to dismiss Fed officials. Cook affirmed she would not resign, underscoring her security in the position.
Focus Shifts to US Labour Market Data
Attention is now shifting to the upcoming US labour market data, especially the non-farm payroll report next week. This data is anticipated to have a considerable impact on interest rates expectations and market dynamics, given the current lack of other driving factors.
The market is currently stuck in a tight range, which is understandable given the lack of major economic news. We’ve seen implied volatility on major currency pairs like EUR/USD drop to multi-week lows, with some one-week options pricing near the 5.5% level. Everyone is simply waiting for a clear signal from the US labor market before making any big moves.
The political noise surrounding the attempt to remove Governor Cook from the Fed is something we are largely ignoring. Markets have become accustomed to this kind of headline risk and see it as a distraction from the real economic drivers. We remember similar situations back in the 2018-2019 period where market reactions to political pressure on the Fed were short-lived.
Upcoming Non-Farm Payroll Focus
Our focus for the next week is squarely on the US Non-Farm Payrolls (NFP) report. Last week’s jobless claims ticked up slightly to 235,000, suggesting some potential cooling, but the market needs a definitive number. The consensus forecast for the NFP is currently hovering around a gain of 180,000 jobs, a figure that would likely keep the Fed on hold.
For derivative traders, this quiet period presents an opportunity to position for the expected rise in volatility. Buying straddles or strangles on major pairs like USD/JPY ahead of the NFP release could be a viable strategy to play a big move in either direction. The current low implied volatility makes the entry cost for such positions relatively attractive.
A much stronger-than-expected number, say above 220,000, would likely push rate cut expectations further out, strengthening the dollar and causing put options on EUR/USD to pay off. Conversely, a weak reading below 150,000 could reignite hopes for a near-term rate cut, triggering a significant dollar sell-off and benefiting call option holders.
