Insights 
VT 
The US Dollar (USD) experienced a decline on Friday during a trading session marked by low activity due to the Independence Day holiday in the United States. Following strong US Nonfarm Payrolls data which initially strengthened the currency, the USD is now losing ground, with the US Dollar Index hovering near 97.00, down from a high of 97.42.
Us Fiscal Concerns
Traders are balancing strong employment data with risks such as US tariffs and fiscal concerns following a new tax-and-spending legislation. The bill, passed by a narrow 218–214 margin, is expected to widen the budget deficit, raising concerns over US financial stability. The ongoing tariff tensions, exacerbated by President Trump’s escalating measures, contribute to market uncertainties.
While the bill is set to be signed into law, it has sparked political debate and raised concerns over its long-term economic effects. It includes tax breaks and spending on defence and border security but slashes Medicaid and food stamp allocations. The Congressional Budget Office estimates it will add $3.4 trillion to the deficit over ten years, pushing the debt-to-GDP ratio from 97.8% to 125%.
US-China tariff discussions have resulted in a framework deal easing some restrictions, though details remain minimal. Meanwhile, India plans to impose retaliatory tariffs on the US, adding to global trade tensions. Nonfarm Payrolls data showed 147,000 jobs gained in June, lowering the unemployment rate to 4.1%. The report decreased expectations for a Federal Reserve interest rate cut, with the current chance of a July cut dropping significantly. Treasury Secretary Scott Bessent criticised the Fed’s rate decisions, pointing to high real rates despite market conditions.
The US Dollar Index remains below the 97.00 mark after attempting recovery, amid a bearish technical setup. The index remains under pressure unless a breakout above 97.00–97.20 is achieved. Key momentum indicators suggest continued selling pressure, with potential downside targeting 95.00 if immediate support at 96.30 is broken.
Federal Reserve Policy Impact
The Federal Reserve’s role includes price stability and full employment, impacting the US Dollar through interest rate adjustments. The Fed holds eight policy meetings yearly and may employ quantitative easing or tightening based on economic conditions, influencing USD value respectively. US monetary policy decisions remain crucial to currency movements, financial market stability, and economic growth.
The recent drop in the US dollar, despite robust hiring numbers, is a clear indication that market participants are focusing less on employment reports and more on the longer-term weight of fiscal risks. Traders saw the greenback briefly lift after the June payrolls came out stronger than expected, but that optimism didn’t last. With the Index sliding below the 97.00 mark and unable to hold above 97.20, the technical picture continues to weigh negatively.
We are currently watching a balancing act play out. On one side, job growth remains steady, adding another 147,000 roles in June and pushing unemployment down again. That would typically lift the dollar, but it’s being offset by mounting pressure from other directions. The recently passed tax-and-spend bill, signed with only a few votes to spare, has stirred the pot quite a bit. Slashing welfare-related expenditure while hiking payments in other departments like defence may be politically motivated, but the market is reading it very differently. Public borrowing needs are set to swell, with forecasts from official figures showing a 125% debt-to-GDP ratio on the horizon if current projections hold.
For those engaged in rate-sensitive strategies, the changing sentiment around Federal Reserve action is becoming ever more relevant. The chances of a rate cut this July have dipped, and that’s not only due to the jobs data. The Treasury’s pointed comments towards central bank policy reveal some dissatisfaction, especially around real interest rates staying elevated despite softness showing up in parts of the broader economy. That criticism is a reminder that although employment is healthy, other indicators—corporate investment, housing activity, and industrial output—might not be pulling in the same direction.
Trade policy is no longer in the background either. Moves from China and, more recently, India, to respond with their own tariffs are beginning to muddy the waters further. Although there’s now a preliminary framework with Beijing that could ease some trade restrictions, what matters to us is that specifics haven’t yet materialised. That leaves room for sudden sentiment shifts and potential price swings, especially during thinly traded sessions.
We note that technicals remain very much in control. As long as the dollar index is unable to reclaim the zone just above 97.00, risk continues to skew to the downside. Indicators point to continued selling, with immediate support at 96.30 looking vulnerable. If that fails to hold, a move as low as 95.00 can’t be ruled out in the near term.
Forward positioning should remain adaptive. It would be unwise to place too much weight on employment data alone when fiscal policy is threatening to draw the Fed’s hand, perhaps even cornering them. Watching how bond markets respond over the coming sessions may offer additional clues—particularly in relation to inflation expectations and cash availability within the funding markets.
In the short term, market participants would do well to pay attention to whether the Fed shows any verbal pivot towards tightening again. That could revive dollar strength for a time, even if policy action lags. However, absent a break above 97.20, selling pressure retains the upper hand technically. Traders might also want to take into account the next set of inflation figures or any further rhetoric on trade retaliation, especially from New Delhi or Beijing, which could reignite dollar volatility. Timing matters, and with reduced liquidity around US holidays, exaggerated moves can unfold quickly.
