Last week, the markets ended in line with forecasts, supporting investors' strong expectation of a 0.25% Federal Reserve rate cut at the September meeting. This expectation was fueled by several US economic releases as well as statements from central bank officials.

The main event of August was the keynote speech by Fed Chair J. Powell at the Jackson Hole symposium, where he clearly hinted that the central bank could cut rates in light of a weak labor market and stabilized inflation. Making such a decision was not easy, given the Fed Chair's position amid heavy pressure from Treasury Secretary S. Bessent and US President D. Trump. But that statement alone wasn't enough—investors, realizing the Fed's dependence on incoming data, focused all their attention on inflation and job numbers.

The latest inflation data, specifically the Personal Consumption Expenditure index, showed overall stabilization, allowing market participants to believe that Trump's trade war did not impact prices as much as previously feared. This means the Fed can indeed cut rates—a policy already supported by at least three voting members of the Fed. The positive news was also the Q2 GDP print, which showed robust growth above 3%, beating the consensus forecast. This allows investors to think that the looming risk of recession is now fading further into the background.

The coming week will be marked by a stream of important economic releases, with the focus clearly on August's labor market reports from ADP and the US Department of Labor. The consensus forecast expects US job creation to be just 71,000 and 74,000 in the private sector (ADP) and nonfarm payrolls, respectively. This is significantly below the 200,000 figure considered necessary for sustained economic growth. That 200K number is something of a "Rubicon," separating negative trends and stagnation from growth.

If the data comes out not much above the forecast (which is likely), it will provide a cast-iron argument for a September 17 cut of 0.25%—maybe even 0.50%, something Treasury Secretary Bessent has previously advocated.

Currently, the market is pricing in an 87.6% chance of a 0.25% rate cut, according to Fed funds futures.

What can we expect from the markets as US employment data is released?

I believe that if job numbers from ADP and the Labor Department come out in line with forecasts, the Fed will be encouraged to cut rates. The market understands this and is positioning for such an outcome, likely leading to a corrective decline in the dollar index, first to 97.50 and then to 97.00. Significant dollar weakness will drive up the price of dollar-denominated assets, especially gold. Cryptocurrencies traded against the dollar may also get a boost. But the main beneficiary is likely to be the stock market—especially US stocks, which will get a fresh dose of optimism, further supported by strong capital inflows from abroad.

Taking a broad view, I consider the overall picture to be positive and conducive to growing demand for risk assets.

Forecast of the Day:

EUR/USD

The pair remains locked in a broad sideways range between 1.1580 and 1.1730, but could break out on the back of very weak job creation numbers from ADP and the US Labor Department. This scenario could push the pair up to 1.1800 as soon as this week. The buy level to watch is 1.1736.

GBP/USD

The pair is trading below resistance at 1.3545. A breakout above this barrier—on the back of very weak US job data—could lift the price to 1.3585 and then 1.3645. The buy level to watch is 1.3552.