Trade Deal Uncertainty
With a looming July 9 deadline, attempts at securing trade deals remain uncertain. Although tentative agreements with the UK and China exist, talks with other partners are stalled, and a shift to interim agreements is notable. The Senate approved Trump’s bill, which includes tax cuts, spending cuts, and a border security plan. However, political interference, aggressive calls for rate cuts, and concerns over Fed independence affect the US Dollar’s stability.
US Treasury yields face pressure, with market expectations of a 125 basis point rate cut by the Fed. Fed Chair Jerome Powell emphasized a cautious approach regarding monetary policy, maintaining an easing bias amid inflation concerns.
The DXY remains below the 21-day Exponential Moving Average (EMA) at 98.20, with momentum indicators showcasing a bearish trend. The Relative Strength Index (RSI) at 27.59 indicates possible short-term rebounds though pressure remains. Until the DXY consistently rises above the 98.00–97.80 range, further declines might be likely, with key support at 96.00.
Technical Signals and Market Reaction
What we’ve seen so far is a notable downward trajectory in the US Dollar Index (DXY), driven by a confluence of structural and policy-driven factors. Even though there was a modest bounce, prompted by stronger-than-expected manufacturing and labour market data, the greenback remains suppressed. The modest recovery towards the 96.85 area offers little comfort given the scale of the earlier retreat and the broader trajectory since the turn of the year. A decline of more than 10% in just six months is not a trivial move.
To put it into perspective, we’re looking at the weakest performance in the better part of five decades. That alone speaks volumes about the level of uncertainty that’s built into current macroeconomic expectations. Much of the damage originates not from economic underperformance in the traditional metrics, but from structural and political headwinds. The flagship fiscal package—branded as a catch-all economic fix—has introduced various forms of unease into the market, particularly with its combination of large spending plans and tax reductions.
Congressional approval of such a massive bill has raised real questions over fiscal discipline. When markets believe that long-term debt levels may spiral out of control without sufficient funding, they tend to reassess the long-term attractiveness of dollar-denominated assets. It’s not just the economists sounding the alarm; traders across both currency and fixed income markets are repositioning.
