Dollar Gains Against Euro and Yen Following Tax Cut Bill
On Friday, the dollar gained ground against both the euro and the yen, as it pressured other countries to finalize trade agreements with the United States. This movement came after President Donald Trump successfully passed a significant tax cut bill.
The dollar rebounded after stronger-than-expected employment data in the US, which shifted expectations around potential rate cuts by the Federal Reserve. However, the Dollar Index is still on track for weekly declines in what appears to be a rocky second half.
In a close vote, Republican lawmakers are anticipated to approve Trump’s “substantial and beautiful bill,” which adds $3.4 trillion to the existing $36.2 trillion debt. Trump is expected to sign the bill later today.
With the US markets closed for Independence Day, attention will turn to Trump’s upcoming deadline on July 9, when tariffs will be imposed on countries like Japan that have yet to secure trade agreements.
“The passage of this bill raises questions about fiscal sustainability and the stability of the bond market,” remarks Kyle Roda, a senior financial analyst at Capital.com. “Yet, for the moment, these risks seem to be overlooked as the market feels optimistic about the resilience of the labor market and anticipates further trade negotiations.”
The dollar index dropped 0.1% to 96.93, pulling back from a 0.4% increase on Thursday. The euro climbed to $1.1775, reflecting a weekly gain of 0.5%. The yen also appreciated, rising 0.4% to 144.40 against the dollar.
Trump indicated that many nations would receive letters today detailing the specific tariff rates they will face, signaling a shift from past commitments to individualized discussions with trading partners.
European Commission President Ursula von der Leyen mentioned that the EU aims to establish a trade deal with the US before the deadline. Japan, which has lately been a focal point of Trump’s ire, is reportedly sending a team of major trade negotiators to the US this weekend.
In other news, a closely watched employment report from the US Labor Department showed an increase of 147,000 jobs in June. “While the US labor market is showing signs of slowing down, the absence of any sharp declines is somewhat reassuring,” commented Hirofumi Suzuki, chief currency strategist at SMBC. “Personally, I think the tariff negotiations could turn out to be less beneficial, which might weaken the dollar further and strengthen the yen.”
According to CME’s FedWatch tool, the likelihood of the Federal Reserve changing rates in its upcoming July meeting has increased to 94.8%, up from 76.2% just a few days prior.
Economists remain hopeful that the Federal Reserve will hold off on any further cuts until September. Meanwhile, the British pound gained 0.1% to reach $1.3668.
