The dollar index (DXY00) rose by +0.30% today, driven by escalating trade tensions with Japan and political turmoil in the UK. President Trump indicated that a trade deal with Japan is unlikely, leading to a decline in the yen. Additionally, GBP/USD fell to a one-week low after UK Prime Minister Starmer’s lack of full support for Chancellor Reeves sparked speculation about her potential resignation.
In the U.S., the June ADP employment change unexpectedly dropped by -33,000, marking the first decline in over two years, and well below the expected increase of +98,000. This has raised concerns about a weakening labor market, with markets pricing a 25% chance of a -25 basis point rate cut at the upcoming FOMC meeting on July 29-30. The Congressional Budget Office forecasts a $3.3 trillion increase in U.S. budget deficits over the next decade due to proposed Republican legislation, adding bearish pressure on the dollar.
In the Eurozone, unemployment unexpectedly increased by +0.1% to 6.3% in May. ECB Governing Council member Rehn expressed concerns about inflation remaining below the ECB’s target for an extended period, while swaps indicate only a 5% chance of a rate cut at the ECB’s policy meeting on July 24.
