Sterling clawed back some of Wednesday's losses after Kier Starmer expressed his support for Rachel Reeves to stay on as Chancellor of the Exchequer. However, yields on gilts have failed to drop back to levels prior to the initial jump, suggesting markets are still a bit cautious about the situation in the UK.
Following a higher-than-expected US job growth in June, for a fourth straight month, and lower unemployment, treasury yields spiked higher and markets have faded the probability of a third rate cut this year. Thus, the jobs report is showcasing a healthy job market despite a slowing economy.
The ISM services report was mixed: while the headline number and new orders component come in higher than expected, the prices paid and employment components missed the mark. Overall, the US dollar was stronger on the day but failed to hold onto the initial gains following the job numbers.
*Daily move - against G10 rates at 7:00 am, 04.07.25
** Indicative rates - interbank rates at 7:00 am, 04.07.25
Couple of headlines stateside overnight with the Trump administration managing to secure House approval for his $3.4tn tax bill and then also Trump stating he will start sending out letters to trading partners today setting out unilateral tariff rates ahead of the July 9th deadline. As a result, US equity futures are pointing to a lower start this morning. The dollar is lower and the tariff havens of the euro, Japanese yen, and Swiss franc are all benefitting this morning.
US markets are closed today with the nation enjoying 4th July celebrations and there is clearly some nervousness amongst traders around keeping the dollar supported into the long weekend. FX traders remain wary of mounting political pressures on the Federal Reserve, with added uncertainty stemming from the impending tariffs on 10th July. With an extended weekend ahead and volatility risks elevated, few market participants are willing to maintain long dollar positions at this juncture.
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