Friday's US labor market report finally dispelled any remaining doubts about whether the Fed would cut interest rates soon, briefly pushing EUR/USD above the 1.1750 mark. Only one of the 80 analysts surveyed by Bloomberg had expected an even worse figure. A 25 basis point cut on September 17 is now fully priced into the market. Some now even see a chance that the Fed could deliver a 50 basis point cut, Commerzbank's Head of FX and Commodity Research Thu Lan Nguyen notes.

US inflation data is due to be released this week

"This is not unreasonable, given that the central bankers kicked off the last interest rate cut cycle almost exactly a year ago in exactly the same way, i.e., with a 50 basis point cut. Considering the current situation on the labor market, which has deteriorated dramatically compared to that time, another sharp interest rate cut would only be consistent."

"New US inflation data is also due to be released this week. In recent months, this data has shown only a moderate effect of US tariffs. The probability therefore seems high that this will remain the case. However, the surprisingly abrupt deterioration in the US labor market has just shown that the effects of US policy do not necessarily have to be gradual. Let's not forget that shortly after Liberation Day, everyone initially assumed that the tariffs would very quickly be reflected in inflation. Just because this has not come to pass does not mean that the price surge will ultimately be completely harmless."

"On Friday, I warned that the political influence on the Fed would only become apparent once inflation rose more sharply. Similar to how last month's disastrous US labor market report triggered a minor earthquake in the markets, the inflation figures also have the potential to cause a significant revaluation in the markets. Therefore, I would be particularly cautious as a USD investor in view of this week's data."