Written by the Market Insights Team
Dollar bulls are getting a lift heading into the long weekend, thanks to upbeat labor market data. June saw non-farm payrolls jump by 147K, well above the 110K forecast, while the jobless rate slipped to 4.1%. That’s calmed some nerves about the impact of tariffs and economic uncertainty, showing the economy still has legs.
With the House advancing Trump’s tax and spending bill, seen as a boost to fiscal policy, optimism is ticking up. Rate cut odds for the Fed’s July 30 meeting just dropped from 25% to 7%.
ADP disappoints, but DXY defies
Antonio Ruggiero – FX & Macro Strategist
The dollar held up surprisingly well yesterday, with DXY slightly up 0.04% this morning, after yesterday’s ADP report reported the first decline in US private-sector employment in over two years. But do refrain from any excitement, the dollar still hovers just off three-year lows, down almost 2% since June’s start, underscoring a weak broader trend.
Payrolls fell by 33,000 in June, following a downwardly revised 29,000 gain in May — a sharp miss versus Bloomberg’s consensus of +98,000, and not a single economist had penciled in a decline. Employers appear to be growing cautious under the weight of Trump-era trade policy uncertainty, prioritizing cost control and aligning headcounts with a cooling economy.
Then how did the dollar manage to hold up? ADP remains the black sheep of labor indicators — volatile, often out of sync with NFP, and easily overshadowed by a stronger-than-expected Tuesday’s JOLTS report. Meanwhile, Powell’s comments from Sintra reaffirmed confidence in the labor market, helping cushion sentiment. Mechanically, an awful day for GBP (read below)— DXY’s third-largest component — also helped offset broader dollar softness.
And finally, Trump clinched a trade deal with Vietnam, avoiding steeper tariffs set for next week. A 20% tariff will still hit Vietnamese goods—40% if they’re rerouted exports—but Vietnam agreed to scrap all duties on U.S. imports. Tariffs are still higher than pre-Trump levels, but, again, markets take the change (from an earlier 46% levy threat) instead of the absolute level as the win.
Focus now shifts to today’s nonfarm payrolls, where expectations are for a softer 106k print (down from 139k prior) – the slowest payrolls growth in four months. While ADP didn’t move the needle much, a weak NFP could seal the case for a more dovish Fed tone into Q3, dragging the dollar down.
Political drama compounds GBP weakness
Antonio Ruggiero – FX & Macro Strategist
Sterling slumped across the board yesterday, weighed down by renewed political turmoil following Tuesday’s events. The fallout hammered UK assets, triggering a broad sell-off as doubts over the UK government’s fiscal credibility resurfaced. Pairs like GBP/USD, GBP/CAD, and GBP/CHF dropped over 1% at some point. Yields surged, with the 30-year yield climbing 21bps to 5.44%, but retreated slightly later in the session as political tensions eased.
But what exactly happened? The selloff began late Tuesday after Prime Minister Keir Starmer abandoned his flagship welfare reform plans in response to a Labour backbencher revolt — a move that not only weakened his authority but blew a fresh £5 billion hole in the fiscal plan. Combined with last month’s £1.25 billion U-turn on pensioner winter fuel payments, the government’s already narrow £9.9 billion buffer against its own fiscal rules now looks dangerously thin.
Political risk intensified yesterday after Prime Minister Starmer declined to reaffirm Chancellor Reeves’ position in Parliament. The lack of support fueled speculation about her future and, more critically, raised concerns over the government’s cohesion and ability to meet its fiscal commitments.
What intensified the market shakeup was speculation that, if Reeves is ousted, her successor may abandon the government’s strict fiscal discipline—fueling expectations of increased borrowing.
Waters calmed later on Wednesday, when Keir Starmer told the BBC that Rachel Reeves would remain UK Chancellor ‘for many years to come,’ seeking to end speculation over her future that had triggered a bond selloff. ‘We’re in lockstep,’ he added. The pound steadied during Asian trading hours.
Britain, once celebrated for securing the first post-Trump trade deal with the US — a symbol of renewed asset credibility — saw its reputation dented this week. Despite efforts to contain the fallout, political turmoil has clearly shaken investor confidence at a time when stability is most needed.
With no major economic data on deck, politics looks set to dominate into the weekend. Unless today’s US payrolls land meaningfully below expectations and revive dovish Fed bets, GBP/USD further upside looks capped.
CAD moves lower
Kevin Ford – FX & Macro Strategist
Q3 has begun with continued risk-on sentiment, as markets largely dismiss mixed macro data. Focus remains on the upcoming July 9th tariff deadline and today’s payroll figures. A new U.S.–Vietnam trade agreement announced yesterday, slashing tariffs on Vietnamese imports from 40% to 20%, has lifted expectations for further deals with key partners, including Canada. As a result, the U.S. Dollar has weakened, supporting the Canadian Dollar, which has fallen below 1.36 and now targets its 2025 low of 1.354.
Further bolstering CAD strength, Charles Emond, CEO of Caisse de Dépôt et Placement du Québec (CDPQ), signaled a shift in the fund’s U.S. strategy after a decade of strong returns. As of year-end 2024, 40% of CDPQ’s $473 billion in assets are U.S.-linked, including half of its stock and nearly half of its real estate holdings. Emond called the current exposure “kind of the peak,” suggesting a pullback is under consideration.
Euro fizzles ahead of NFP
Antonio Ruggiero – FX & Macro Strategist
The EUR/USD rally continued to lose steam yesterday, flirting with the $1.18 handle but failing to break into it more confidently. Despite yesterday’s softer-than-expected JOLTS report, supportive of the euro, markets are squarely focused on today’s NFP data. In other words, the typically volatile ADP release failed to shift sentiment — likely overshadowed, also, by Tuesday’s strong JOLTS data.
While momentum has cooled over the past two sessions, the euro remains nearly 14% stronger vs. the dollar this year, sparking concerns that rapid appreciation could undermine the bloc’s already fragile competitiveness. As the euro strengthens, European exports become more expensive, a headwind in an increasingly contested global trade environment.
The implications go beyond trade. A stronger euro also presents translation risks: foreign revenues earned in weaker currencies convert into fewer euros, denting earnings for eurozone multinationals and weighing on equity performance. These concerns took center stage at the ECB’s Sintra forum this week, where policymakers debated how to respond to currency-driven disinflation risks, with further rate cuts as a potential tool to address them.
Despite this, Vice President de Guindos reinforced that the ECB is “in a good place” on rates, downplaying the need for another sub-2% move and instead urging greater clarity on trade and fiscal policy to support growth. For reference, the euro has averaged $1.1829 since its inception in 1999, and it still trades below that long-run benchmark today.
Expect EUR/USD’s rally to remain subdued, staying below the $1.18 level until NFP is released later today.
Sterling loses ground on political chaos
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: June 30- July 4
All times are in ET
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
