Summary of Three Critical Issues for the US Dollar
Author: John J. Hardy, Global Head of Macro Strategy
Date: July 2, 2025
Overview
The article discusses the current state of the US dollar (USD) and outlines three critical issues that could impact its performance in the coming week. The context includes recent job openings data and upcoming economic reports, particularly the June US jobs report and trade negotiations with Japan.
Recent Developments
Recent fluctuations in the USD have been influenced by various factors, including a notable drop in US Treasury yields and strong job openings data from May. The USD initially weakened against the Japanese yen (JPY) but rebounded as Treasury yields rose again, following comments from Federal Reserve Chair Jerome Powell about the economy's health and inflation expectations.
President Trump expressed frustration over the slow progress in US-Japan trade negotiations, suggesting that tariffs could be imposed if a deal is not reached by the July 9 deadline. This uncertainty has contributed to volatility in the USD/JPY exchange rate.
Three Critical Issues for the USD
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US June Jobs Report
The upcoming jobs report is crucial, with market expectations set for a non-farm payroll (NFP) change of around +110,000. A significant downside surprise (below 50,000) could lead to a bearish sentiment for the USD, while a strong reading (above 150,000) might boost the USD as traders cover short positions.
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Trump's July 9 Negotiation Deadline
Trump's desire for swift trade agreements could lead to market volatility. The outcome of negotiations with Japan and other countries may significantly impact the USD, especially if tariffs are imposed or if the terms of trade are perceived as unfavorable.
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US Congressional Spending Bill
The spending bill currently under consideration could influence the USD's strength. If the bill passes with provisions that defund health coverage for low-income Americans while extending tax cuts for the wealthy, it may negatively affect Trump's legacy and the USD's value. Conversely, a more fiscally responsible outcome could bolster market confidence.
Market Sentiment and Trends
The article notes that the USD remains in a bearish trend, with the Swiss franc and euro performing relatively well against it. The upcoming events could either reinforce existing trends or lead to significant shifts in market sentiment.
Conclusion
In summary, the USD's outlook is clouded by upcoming economic data, trade negotiations, and legislative developments. Traders are advised to remain vigilant as these factors could lead to substantial market movements in the near term.