Economic Events and Expectations
This week will be focused on two events: the US inflation report on Tuesday and a meeting between US President Donald Trump and Russian President Vladimir Putin on Friday. The forecast for the core CPI in July is 0.3% month-on-month, with a yearly rise of 3.0%, seen as conducive for a Federal Reserve rate cut in September, as 90% is priced in.
Predictions for a 0.4% increase in monthly core CPI could influence data interpretation but are not expected to alter the likelihood of a rate cut. The US Dollar might receive temporary support from Tuesday’s CPI data, but this could decrease as further economic indicators highlight labour market and activity weaknesses.
Regarding the US-Russia summit, expectations lean towards Putin seeking concessions from Ukraine for a ceasefire. Trump’s leverage includes potential sanctions and economic pressures on Russia’s trade allies. Crude oil prices have fallen by 8% since August, reflecting cautious optimism about a truce, while Ukraine’s 10-year bonds have seen a 2% rally.
This week’s data, including the NFIB survey, PPI data, and retail sales, along with Federal Reserve communications, will be crucial for the dollar. Quiet markets are expected ahead of the CPI announcement.
We are now seeing the long-term effects of the events from last summer. Looking back at that period in 2024, the soft inflation data did indeed pave the way for the Federal Reserve to cut interest rates in September of that year. This pivot away from tighter policy has defined the market landscape we are in today.
Market Shifts and Volatility
The summit between Trump and Putin resulted in a fragile ceasefire that calmed markets temporarily, just as we saw with the initial 8% drop in crude prices at the time. However, that truce is now fraying, with renewed disputes over Black Sea grain shipments dominating recent headlines. Consequently, WTI crude has rallied back strongly in 2025, now trading near $85 a barrel.
The situation has shifted dramatically, as the easy inflation comparisons are behind us. Core CPI for July 2025 just printed at a hot 0.4%, pushing the annual rate back up and challenging the Fed’s dovish stance. This has pushed the US Dollar Index (DXY) to a six-month high around 106.5 and sent ripples through equity markets.
Given this renewed uncertainty, volatility is our primary focus. The VIX index has climbed from summer lows of 15 to hover near 19, and we expect it may rise further as the market debates the Fed’s next move. We believe buying call options on the US dollar is a sensible hedge against a more hawkish Fed.
With geopolitical tensions rising again, that fragile ceasefire agreed upon last year is now the main driver of oil volatility. The market is nervous, and any escalation could cause a significant price spike from these already elevated levels. This uncertainty makes long straddles on crude oil futures an interesting play, betting on a big price move in either direction.
