Good morning
The US dollar remains under cyclical downward pressure, driven by ongoing uncertainties surrounding US fiscal and trade policies. One key driver that could further hurt the US dollar is the potential surge in fiscal debt stemming from President Trump’s one big, beautiful bill. According to the Congressional Budget Office (CBO), Trump’s tax and spending measure could add nearly $3.3tn to US fiscal deficits over the next 10 years. Republicans are edging closer to passing Trump’s signature tax bill, having narrowly cleared a procedural vote in the Senate on Saturday night. The procedural vote was narrowly passed with a 51-49 vote on Saturday night, moving the bill to a final Senate vote. Trump has publicly criticised 2 Republican senators who opposed the measure during the procedural vote. A final Senate vote on the bill could take place later today. If approved, the bill will proceed to the House for a vote on the Senate version, before reaching Trump’s desk. Trump is urging lawmakers to pass the bill before the Republican’s self-imposed deadline of 4 July.
This week’s economic calendar offers an important update on the US economy with the ISM business confidence indicators, JOLTS job openings and the June payrolls report. US markets are particularly vulnerable for downside surprises that could spur more speculation on Fed cuts. Portugal’s Sintra is in the centre of attention with the ECB’s yearly Forum on Central Banking taking place. Kick-off is today. The central bank also releases its conclusions of its strategic review while Germany is scheduled to release inflation numbers ahead of the European print tomorrow.
The USD index is now trading below the key 97.70 level, which has provided major support since 2011. Comments over the weekend reinforced expectations for lower US rates, further weighing on the outlook for the greenback. Month-and quarter-end flows are adding to volatility.
Canada pulled a 3% tax on revenue for the biggest technology company’s just hours before it came into effect. The digital services tax prompted US President Trump to terminate ongoing trade talks between both nations. Canadian PM Carney said that scrapping the tax will support a resumption of negotiations towards a July 21 deadline agreed at this month’s G7-meeting. USD/CAD endured a roller-coaster ride with USD/CAD gaining a big figure on Friday after the Trump comments, only fall all the way back to 1.3665 this morning following the Canadian U-turn.
EUR/USD is holding above 1.17 at 1.1730 benefitting from improved risk appetite and broad dollar weakness. The pair is trending higher nicely along an upward sloping channel. ECB President Lagarde speech today will be a key event for FX markets, with traders watching for any hints on future monetary policy.
GBP is also broadly supported for now, supported by positive UK-US yield differentials. GBP/USD looks set to test resistance toward $1.3750 with the pair currently trading around $1.3730, with the uptrend intact unless the dollar stages a significant comeback.
USD/JPY has eased back below the 144 level to 143.90 after data showed that factory output grew at a much slower pace than expected in May amid weaker external demand, primarily due to U.S. tariffs on automobiles.
AUD is trading near a seven-month high around $0.6546, despite expectations of further RBA rate cuts due to subdued inflation data and continued dollar weakness. Technicals suggest an uptrend, with resistance noted at $0.6585.
Asian currencies have made steady gains following the Iran-Israel ceasefire and amid growing market concerns about the Fed’s independence and the US fiscal outlook. Overall sentiment has improved following last week’s announcement that the US had finalised a trade deal with China, finalising the terms outlined in Geneva last month.
Data on Monday showed that China’s manufacturing sector eased at a weaker-than-expected pace in June, as domestic producers continued to struggle with weak external demand and elevated U.S. trade tariffs.
Meanwhile, South Korea’s industrial production declined for a second straight month in May.
The TWD has shown unexpected resilience despite the recent Middle East conflict, and it made further gains against the greenback last week, rising by 1.3%. There appears to be some support for USD/TWD around the 29.00-level for now, though, but further TWD gains could exacerbate FX losses for Taiwan life insurers and the FX level is being kept under close scrutiny by the central bank.
The Thai baht has also posted some gains in the wake of the Israel-Iran ceasefire, but it is vulnerable to an escalating domestic political crisis. Thousands of protesters have taken to the streets in Bangkok, demanding the resignation of Thai Prime Minister Paetongtarn following a leaked phone call with former Cambodian Prime Minister Hun Sen. In the call, she criticised the military for escalating a border dispute with Cambodia. The diplomatic scandal has already prompted a major coalition partner, Bhumjaithai – holding 69 parliamentary seats - to exit the ruling coalition. This leaves the government with only a slim majority of 255 seats. USD/THB is trading around 29.122

| Interest Rate Swaps | EUR | USD | GBP |
| 3Y | 2.08 | 3.43 | 3.60 |
| 5Y | 2.26 | 3.46 | 3.68 |
| 10Y | 2.59 | 3.73 | 4.01 |




















