Looming Deadlines and Newly Expressed Concern about Dollar’s Recent Softness – Currency Thoughts
Looming Deadlines and Newly Expressed Concern about Dollar’s Recent Softness
July 2, 2025
U.S. President Trump wants a reconciled tax and spending bill on his desk for signing by Friday, Independence Day.The senate’s bill passed by the narrowest of margins (51-50) and would raise U.S. debt considerably more than the House’s earlier plan. Despite that discrepancy, the president is currently on a multi-dimensional winning streak, and it would be risky not to count on him getting his way again on what might be his largest priority so far.
Bilateral trade talks are also coming down to the wire, with the U.S. threatening huge tariff increases in cases where a deal is not achieved before the July 9th deadline, now just a week away. Much attention has been drawn to U.S.-Japanese talks, where big differences persist between the U.S. and Japanese negotiators. An extra 35% tariff is threatened against Japan is a deal can’t be worked out.
OPEC+ has a scheduled meeting next Sunday to ratify tentative plans to raise the cartel’s production by 411,000 barrels per day effective next month. Tariphobia and geopolitical risks have placed a cloud over energy demand.
Tariff uncertainty has also been the catalyst behind the pause in Federal Reserve interest rate cuts according to Fed Chairman Powell and other officials at the central bank. The European Central Bank coincidentally is now holding a forum on central banking, where monetary officials from numerous key central banks are making potentially market-moving comments. Four ideas to emerge are:
- Concern is growing in Europe that the weaker dollar if extended much further might exacerbate the slow growth outlook. ECB Vice President de Guindos identified the $1.20 per euro level as a threshold she hopes is not passed. As pointed out in this space yesterday, the euro high of $1.1830 yesterday was by coincidence to its level at the start of 1999 when several currencies merged and were replaced by the euro, and monetary policy in those participants was delegated to a single authority, the European Central Bank.
- Officials at the Bank of Japan want to gather more information before proceeding further with their interest rate-raising cycle.
- A number of European Central Bank officials, who have already cut their interest rate eight times from last year’s peak, see the pro-and-con balance of risks to be almost in balance and are not inclined to cut interest rates much further. A pause may be in order in European interest rate-cutting cycle.
- Britain’s growth prospects have deteriorated. The Monetary Policy Commitee of the BOE refrained from changing the central bank’s interest rate at the June policy review but is widely projected to reduce such in early August.
Like earlier U.S. Republican administrations going back to the 1980’s, the Trump team is counting on faster growth unleashed by big tax cuts to neutralize the impact on the U.S. fiscal deficits and accumulated debt. That didn’t happen on the earlier occasions, and investors aren’t believing the promise now, either. The 10-year U.S. Treasury yield is three basis points above yesterday’s closing level even after trimming a larger advance earlier in the overnight period. Meanwhile, other 10-year sovereign debt yields show overnight net advances of 14 basis points in Great Britain, seven basis points in Germany, five basis points in France and Italy, and four basis points in Japan and Spain.
Slight gains in U.S. stock futures were squandered after the ADP monthly estimate of U.S. private sector employment fell 33k last month. Equities in the Pacific Rim had closed up 0.7% in Australia, 0.6% in Hong Kong and South Korea and 0.5% in Singapore, and European markets are showing small advances.
Helped by the aforementioned expressions of concern over dollar depreciation earlier this year, the greenback currently shows across-the-board gains, led by a 1.1% overnight rise against sterling and including advances of 0.4% versus the euro, 0.5% relative to the Aussie dollar, and 0.3% versus the yen.
The prices of Bitcoin, oil and gold are currently 1.5%, 1.1% and 0.2% above Tuesday closing levels.
Today’s data release menu has been a thin one.
Consumer price inflation in South Korea rose to a 5-month high but still manageable 2.2% in June.
Filipino producer prices dipped 0.1% on month and 0.4% on year. The 12-month decline is the largest negative change in seven months and down from a 1.0% on-year rise in February.
Romanian producer price inflation was halved to 0.9% in May from 1.7% in April and 3.9% in February.
The U.S. 30-year fixed mortgage rate last week dropped to a 12-week low of 6.79%, and mortgage applications (+2.7%) went up for the third time in four weeks.
Unemployment in the euro area unexpectedly ticked up a tenth of a percentage point to 6.3% from a record low of 6.2% in the final quarter of 2024 and revisited in April. Joblessness had been 10.0% or above until October 2016.
Business confidence in Thailand rebounded from April’s 8-month low to a 3-month high in May but still printed below 50 at 48.6.
Retail sales in Hong Kong recorded their largest year-on-year advance in May (+1.9%) in 17 months.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: ECB central banking forum, trade talks, U.S. tax and spending bill
ShareThisYou can leave a response, or trackback from your own site.
