The trading session has been uneventful with minimal news and no economic data. Markets traded in tight ranges, with slight increases in the US dollar and equities, and minor declines in gold ahead of the US CPI report.
The European Central Bank decision is due before the US CPI and Jobless Claims data, yet it’s expected to be a minor event. This is because of the prevailing focus on the US CPI report and the central bank’s pause stance.
Upcoming US CPI And Jobless Claims Data
The upcoming US CPI and Jobless Claims figures hold significance, with the Core CPI Y/Y expected at 3.1% and the Core M/M at 0.3%. A softer report could elevate the likelihood of a 50 basis points rate cut to 40-60%.
A strong CPI report won’t affect expectations for a 25 basis points September cut but could lead to a slight upward adjustment for the 2026 pricing. The US Jobless Claims are expected at 235K, with continuing claims at 1951K.
The Jobless Claims data provides a timely labour market indicator, showing a stable environment with low hiring and firing rates, supported by positive business surveys. Strong data with a hot CPI could lead to more pronounced hawkish adjustments. Conversely, soft data might boost dovish expectations.
Markets are quiet as we await today’s critical US CPI report. We’ve seen the dollar and equities edge slightly higher, but these are small moves in a holding pattern. The real action will come after the inflation data is released.
Main Focus On US Core Inflation
The main focus is whether core inflation remains stuck at 3.1%, as it did in the August 2025 report. After seeing inflation fall significantly during 2024, any sign that it is not continuing its downward path toward the 2% target will make the Fed’s job harder. This data point will dictate rate expectations for the rest of the year.
If the CPI number comes in soft, we should anticipate markets to quickly price in higher odds of a 50 basis point rate cut from the Fed this month. Derivative traders could position for this by using short-dated options that would profit from a weaker dollar and a rally in bond prices. The VIX, currently sitting low around 14, would likely fall further in a dovish scenario.
A hot inflation report, on the other hand, likely won’t change the view of a 25 basis point cut in September, but it will shift the outlook for 2026. This means traders should look at longer-dated derivatives, like options on 2026 SOFR futures, to bet on fewer rate cuts than the three currently priced in. This could signal a “higher for longer” policy stance is truly taking hold.
The US Jobless Claims data, released at the same time, is the wildcard today. We’ve had two consecutive soft Nonfarm Payroll reports, with August 2025 only showing a 140,000 job gain, so any unexpected weakness in claims could amplify a soft CPI reading. This makes multi-leg option strategies, which can profit from increased volatility in either direction, a prudent consideration.
If we see both a hot CPI and strong Jobless Claims, the market reaction could be sharp. This combination would suggest the economy is still running too hot, forcing a significant hawkish repricing of the Fed’s future path. In this case, protective puts on major stock indices or calls on the VIX could prove valuable.
The ECB decision today is widely seen as a non-event, with the bank in a firm pause mode as it waits for Eurozone inflation to cool from its recent 2.8% level. For now, the US data is driving everything, especially for currency pairs like the EUR/USD. The key is to watch how US rate expectations diverge from Europe’s after today’s numbers.
