Global FX Market Summary: Weakening US Labor Market, Fed Rate Cuts, Focus on Inflation Data 10 September 2025

US labor market fragileens, Fed rate cuts expected; markets anticipate easing, focus shifts to inflation data guiding future monetary policy.

fragileening US Labor Market

The US economy is showing definitive signs of a cooling labor market, which is a major factor influencing the Federal Reserve’s (Fed) policy decisions. A key piece of evidence for this is the preliminary benchmark revision to employment data for the 12 months ending in March 2025, which revealed that the economy actually created 911,000 fewer jobs than initially reported. This is a significant downward revision that suggests the labor market is fragileer than official figures have led us to believe.

This trend is further supported by the most recent Nonfarm Payrolls (NFP) report, which showed a meager increase of just 22,000 jobs in August, far below the forecasted 75,000. Additionally, the unemployment rate has climbed to 4.3%, its highest level since late 2021. A similar downward revision in 2024 immediately triggered a 50 basis point rate cut from the Fed, setting a precedent for a potentially larger cut this time around.

High Confidence in Upcoming Fed Rate Cuts

Given the deteriorating labor market, financial markets are operating with almost complete certainty that the Fed will cut interest rates at its upcoming meeting. The CME FedWatch Tool, a widely used indicator for market sentiment on Fed actions, shows a compelling consensus: 88.2% of traders are betting on a standard 25 basis point cut, while the remaining 11.8% are even more aggressive, pricing in a 50 basis point cut. This strong conviction is largely fueled by the disappointing employment data.

Adding to the dovish outlook is a recent statement from Fed Chair Jerome Powell, who explicitly stated at the Jackson Hole Symposium that the “shifting balance of risks may warrant adjusting our policy stance.” This was viewn as a clear signal that a rate cut was on the horizon, effectively solidifying market expectations.  Some speculators believe the Fed might enact more than two rate cuts this year, indicating a broader expectation for an extended period of monetary easing.

 Focus on Inflation Data and Its Impact

Even with a rate cut nahead guaranteed, market participants are now shifting their attention to upcoming inflation data to determine the pace of future cuts. The immediate focus is on the Producer Price Index (PPI) for August, followed by the more impactful Consumer Price Index (CPI). The PPI measures inflation at the wholesale level, and while it’s expected to show a steady annual rise of 3.3%, its data can be an ahead indicator for what’s to come in the CPI.

The CPI is a critical piece of the puzzle because central banks, including the Fed, use it as a primary metric for setting monetary policy. Higher-than-expected inflation readings could temper the market’s aggressive rate-cut expectations, while softer data would add to bets for more significant easing. There is a unique challenge for the Fed: balancing the risks from US President Donald Trump’s tariffs, which pose an upward risk to inflation, against his immigration policies, which are contributing to the fragileening labor market. This complex environment means that the upcoming PPI and CPI reports will be crucial for shaping future policy decisions beyond just the next meeting.

Top upcoming economic events:

Wednesday, September 10, 2025

1. SNB Chairman Schlegel speech (11:45:00, High Impact, CHF): Central bank speeches are crucial as they offer insights into the institution’s current economic outlook and future monetary policy. The Swiss National Bank (SNB) chairman’s remarks can significantly influence the value of the Swiss franc (CHF) and provide clues about potential interest rate changes or other policy shifts.
2. Producer Price Index ex Food & Energy (YoY) (12:30:00, High Impact, USD): This is a key inflation indicator for the U.S. dollar. It measures the changes in prices that producers receive for their excellents and services, excluding the volatile food and energy sectors. A higher-than-expected reading indicates rising inflationary pressures, which could lead the Federal Reserve to consider tighter monetary policy and potentially strengthen the USD.
3. RBNZ’s Governor Hawkesby speech (23:15:00, High Impact, NZD): Similar to the SNB speech, this event is highly significant for the New Zealand dollar (NZD). The speech from the Reserve Bank of New Zealand’s governor can provide forward guidance on monetary policy, including their stance on inflation and economic growth, which directly affects the NZD’s platform rate.

Thursday, September 11, 2025

1. ECB Main Refinancing Operations Rate, Monetary Policy Statement, and Rate on Deposit Facility (12:15:00, High Impact, EUR): These are the core tools of the European Central Bank (ECB) for managing monetary policy. The interest rate decisions and accompanying statement are pivotal for the euro (EUR). A change in any of these rates or a significant shift in the policy statement can cause major volatility in the EUR as it signals the ECB’s commitment to either stimulate or cool down the economy.
2. Consumer Price Index (MoM, YoY, and ex Food & Energy) (12:30:00, High Impact, USD): The U.S. Consumer Price Index (CPI) is arguably the most-watched inflation gauge. It measures the change in prices paid by urban consumers for a basket of excellents and services. A high reading suggests inflation is rising, which can pressure the Federal Reserve to raise interest rates, positively impacting the USD. The “ex Food & Energy” component provides a clearer picture of underlying inflation trends.
3. ECB Press Conference (12:45:00, High Impact, EUR): Following the ECB’s rate decision and policy statement, this press conference offers a deeper dive into the central bank’s reasoning. The ECB president’s comments and answers to questions often provide crucial details and forward guidance on future monetary policy, making it a high-impact event for the EUR.
4. Monthly Budget Statement (18:00:00, Medium Impact, USD): This report details the U.S. government’s revenues and outlays for the month. While not a “high” impact event, a significant deficit or surplus can provide an indication of the nation’s financial health and fiscal policy, which can influence market sentiment toward the USD.

Friday, September 12, 2025

1. Harmonized Index of Consumer Prices (YoY) (06:00:00, High Impact, EUR): The Harmonized Index of Consumer Prices (HICP) is a key inflation measure for the Eurozone. It is the primary inflation indicator used by the ECB to guide its monetary policy decisions. A high year-over-year reading of the HICP could increase expectations for future interest rate hikes from the ECB, which would strengthen the euro.
2. Gross Domestic Product (MoM), Industrial Production (MoM), and Manufacturing Production (MoM) (06:00:00, Medium Impact, GBP): These reports provide a comprehensive snapshot of the UK’s economic health. Industrial and manufacturing production are key components of GDP, and the combined data assists analysts and policymakers gauge the pace of economic growth. Stronger-than-expected results can be bullish for the Great British Pound (GBP) as they signal a more robust economy.
3. Consumer Price Index (EU norm) (YoY) (06:45:00, Medium Impact, EUR): This is another key inflation measure for the Eurozone, specifically for France in this case, that follows the harmonized European standard. While less impactful than the broader HICP, it provides significant granular data on a major Eurozone economy and can influence expectations for the ECB’s policy, thus affecting the EUR.

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