Insights 
VT 
The Eurozone Flash CPI report is due today, with expectations set for a 2.0% year-on-year rise, consistent with the previous figure. The Core measure might see a slight reduction to 2.2% from the prior 2.3%. The European Central Bank appears to have concluded rate cuts and could consider increasing rates as suggested by recent communications. Markets are factoring in just 6 basis points of rate easing by year-end and 15 basis points by the end of 2026, indicating that changes in expectations would require notable reasons.
In the US session, focus turns to the ISM Manufacturing PMI, which is expected to show an increase to 49.0 from the previous 48.0. Recent S&P Global US PMIs have shown strength, suggesting more interest in raising rates rather than cutting them. Economic momentum and rising inflationary pressures contribute to these expectations.
Key Event Of The Week
The key event later in the week will be the NFP report. Sentiment prior to Friday’s data will likely be shaped by the ISM and ADP figures, making it important for market participants to remain vigilant.
With today’s Eurozone inflation data expected to show headline CPI holding at 2.0%, we see little reason for the European Central Bank to change its stance. We just saw German services inflation for August 2025 accelerate to 3.5%, suggesting underlying price pressures are not fading as quickly as hoped. Any upside surprise in the CPI numbers will likely reinforce the ECB’s hawkish position.
This means derivatives traders should be cautious about pricing in any rate cuts for the euro. Looking back, we remember the ECB paused its easing cycle in late 2024, and current market pricing via ESTR forwards implies less than a 25% chance of any cut before the middle of 2026. Given this, volatility options like straddles on EUR/USD could be interesting if inflation comes in significantly hotter, forcing a repricing of ECB policy.
Later today, our focus will shift to the US ISM Manufacturing PMI, which is expected to improve slightly to 49.0. However, the S&P Global PMI reading for August already printed a stronger 51.2, so we could see an upside surprise that points to a resilient US economy. A number above the 50.0 mark would signal a return to expansion and likely put upward pressure on Treasury yields.
Federal Reserve And Market Impact
This supports the view that the Federal Reserve is far from considering rate cuts, especially after the last Core PCE inflation reading for July 2025 came in at a sticky 2.9%. We have seen fed funds futures shift significantly over the summer, now pricing in a 40% probability of a rate hike before the year ends. Traders should consider positioning for a stronger dollar, as positive economic data will only embolden the Fed’s hawkish bias.
Ultimately, this week’s direction will be determined by Friday’s NFP report. Last week’s JOLTS report showed job openings unexpectedly ticked up, suggesting the labor market is not cooling enough for the Fed. Today’s ISM employment component will therefore be a critical preview for what we can expect from the main jobs number.
