Dollar Climbs, Pound Drops Amid Trade Talks and Fed Rate Cut Speculation

The U.S. dollar strengthened against major currencies as markets anticipated a Federal Reserve interest rate cut, bolstered by data showing U.S. private payrolls declining for the first time in over two years in June. This development has fuelled expectations of a potential rate cut as early as September. Meanwhile, traders are bracing for the upcoming U.S. Labor Department’s employment report, set for release on Thursday, ahead of the July 4 holiday. President Donald Trump’s recent tax-cut and spending bill, narrowly passed by the Senate, is projected to increase the national debt by $3.3 trillion, with discussions now moving to the House of Representatives. Additionally, a new trade agreement with Vietnam, reducing planned tariffs, has raised hopes of similar deals with other nations before the July 9 deadline for higher tariffs.

The British pound weakened significantly, falling 0.79% to $1.3634 against the dollar, hitting a one-week low. This decline coincided with a sharp selloff in British government bonds, marking their worst performance since October 2022. The selloff followed the government’s decision to scale back benefit cuts, sparking speculation about the stability of the UK’s finance minister and eroding confidence in the Labour government. The euro, meanwhile, dipped slightly by 0.08% to $1.179725 against the dollar but gained 0.9% against the pound, reflecting broader market dynamics and shifting investor sentiment.

The dollar index, tracking the greenback against a basket of currencies including the yen and euro, rose 0.154% to 96.786, poised to end a nine-session losing streak. Despite this uptick, the index remains near multi-year lows, impacted by ongoing trade uncertainties. The dollar also edged up 0.15% against the Japanese yen to 143.635 and 0.06% against the Swiss franc to 0.79150. Eurozone inflation stabilised at the European Central Bank’s 2% target, shifting focus to potential tariff-related volatility. Elsewhere, the Canadian dollar gained 0.35% to C$1.36, while the dollar rose marginally by 0.03% to 7.161 against the offshore Chinese yuan.