Insights 
VT 
Monday morning market conditions start with thin liquidity as Asian centres gradually open, causing potential price fluctuations. Initial foreign exchange rates remain largely consistent with those observed late on Friday: EUR/USD stands at 1.1694, USD/JPY at 147.09, GBP/USD at 1.3503, USD/CHF at 0.7993, USD/CAD at 1.3737, AUD/USD at 0.6545, and NZD/USD at 0.5897.
Economic Agenda Highlights
The economic agenda for Monday includes China’s manufacturing PMI, which recorded 49.4 against an expected 49.5. The services PMI aligns with projections at 50.3. US Federal Appeals court has recently deemed most tariffs imposed by Trump as unlawful, while Alibaba has announced the development of new AI chips. Other focal points for the week include US non-farm payrolls, ISM PMIs, the Eurozone’s Flash CPI, UK retail sales, and Canadian employment data.
As we head into the first week of September 2025, market liquidity is thin, meaning price swings can be exaggerated on little news. The key events this week, including US jobs data and manufacturing reports, will set the tone. Derivative traders should be cautious with early week positions until more volume enters the market.
The pressure on Fed Chair Powell is immense, especially with continued criticism from Trump. While the recent core PCE inflation data came in as expected, the upcoming Non-Farm Payrolls report is now the market’s entire focus. Given that the last two NFP reports in mid-2025 missed expectations, another weak number could heighten bets on a policy shift and create significant volatility in interest rate futures.
We are seeing a clear signal of a slowdown from China, with the official manufacturing PMI for August coming in at 49.4, marking a contraction. The August Caixin Manufacturing PMI, a private survey, also fell to 49.2, confirming the official data and showing the weakest reading in seven months. This directly impacts commodity-linked currencies, suggesting that short positions on the Australian dollar through options could be a strategy to watch.
The Impact of US Jobs Data
The US dollar is facing conflicting pressures, making the dollar index a difficult trade. China’s weakness is typically a positive for the dollar as a safe-haven asset. However, the recent US Federal Appeals court ruling that most of Trump’s tariffs are illegal could unwind a major source of dollar strength from the late 2010s and early 2020s.
With USD/JPY sitting high at 147.09, this pair is extremely sensitive to the upcoming US jobs data and any shift in rate expectations. We saw how quickly this pair could move during the Bank of Japan’s interventions back in 2022 and 2023, so buying out-of-the-money puts could offer a cheap way to position for a sharp downturn. Meanwhile, with EUR/USD at 1.1694, the upcoming Eurozone inflation figures will be critical for determining if the pair can break above the key resistance we saw it test in late 2023.
The political environment adds a layer of risk that is hard to model. The tariff ruling and ongoing public criticism of the Fed mean that headline risk is unusually high. Using derivatives to define risk, rather than relying on simple stop-loss orders which can be jumped on a tweet or news flash, is a more prudent approach in this climate.
