Dollar drifts as traders hunker down for US payrolls

Zawya

03-07-2025

SINGAPORE: The dollar wobbled on Thursday after a trade agreement between the United States and Vietnam fuelled optimism over potential future deals ahead of a July 9 tariff deadline, while investors looked to payrolls to assess the Federal Reserve's next steps.
Sterling firmed slightly after a sharp drop the previous session as British Prime Minister Keir Starmer's office rushed to give Finance Minister Rachel Reeves his full backing, hoping to allay investor worries about Britain's finances.
The pound dropped nearly 1% and British government bonds tumbled on Wednesday, as a tearful appearance by Reeves in parliament a day after the government backed down on its welfare reforms reignited concern over Britain's finances.
The pound last fetched $1.3647, slightly higher in Asian hours, while the euro was steady at $1.1806, hovering close to the September 2021 top it touched earlier this week. The yen firmed a bit to 143.56 per dollar.
The dollar index, which measures the U.S. currency against six other units, was at 96.701, still near the 3-1/2-year lows it has been rooted to this week. The index is on course for a 0.5% drop in the week.
Investor attention will be on the U.S. Labor Department's comprehensive employment report for June, due to be released on Thursday ahead of the July 4 holiday after data showed private payrolls fell for the first time in more than two years in June.
The ADP report released on Wednesday pushed traders to shift expectations of when the Fed will cut interest rates. Traders are pricing in 25% chance of the Fed moving in July versus 20% a day earlier, CME FedWatch tool showed.
"The ADP print has certainly raised the stakes for nonfarm payrolls today," said Charu Chanana, chief investment strategist at Saxo in Singapore.
"What could earlier have been interpreted as 'bad news is good news' (softer data pushing the Fed to cut) may now simply be seen as bad news, especially if recession concerns take hold."
Ahead of the July 9 tariff deadline, President Donald Trump announced Vietnam had struck a trade deal with the U.S. and could push other countries to reach similar agreements on duties.
Although details were scant, Trump said Vietnamese goods would face a 20% tariff and trans-shipments from third countries through Vietnam will face a 40% levy.
"What's important to watch now is how China responds, given that the move directly targets trans-shipped goods at a higher 40% tariff rate," said Saxo's Chanana.
"It's a clear signal that global supply chains are being reshaped, and more disruption may be ahead."
Meanwhile, Republicans in the House of Representatives struggled to pass Trump's massive tax-cut and spending bill as a handful of hardliners withheld their support over concerns about its cost.
The bill is expected to add $3.3 trillion to the already swelling national debt, stoking fiscal worries. Bond investors around the world are growing increasingly nervous about government deficits from Japan to the United States.
Eddy Loh, chief investment officer at Maybank Wealth Management, said the U.S. government may be "somewhat constrained about how much fiscal support they can do to boost the economy without creating too many deficit concerns." (Reporting by Ankur Banerjee in Singapore; Editing by Jacqueline Wong)