US dollar strengthens on strong payroll report, but faces challenges from trade concerns

The US dollar is up +0.36% today after a strong US payroll report and improved interest rate differentials. However, reduced safe-haven demand and a bearish US trade deficit are keeping the dollar in check.

The House is working to pass a reconciliation bill with a potential $3.3 trillion addition to US budget deficits. The bill includes a debt ceiling hike to avoid a Treasury default, sparking concerns of a future debt crisis.

Trade talks are ongoing ahead of the July 9 deadline for reciprocal tariff implementation. The EU aims to reach an agreement with the US, while the US has secured a trade deal with Vietnam and is unlikely to reach one with Japan.

June’s non-farm payroll report exceeded expectations, with a +147,000 increase in employment. The unemployment rate fell to 4.1%, and average hourly earnings rose slightly. Initial unemployment claims also decreased.

The June ISM US Services Index and S&P US services PMI showed improvements, while US factory orders rebounded in May. Markets are pricing in a 6% chance of a -25 bp rate cut at the July FOMC meeting.

The euro is down -0.37% against the dollar due to dollar strength and concerns raised by ECB officials. However, positive revisions to the final-June HCOB Eurozone services PMI provide some optimism.

USD/JPY is up +0.91% as the yen faces pressure from trade concerns with Japan. Gold prices are down, while silver is up on optimism about industrial metals demand after strong US economic reports.

Read more at Yahoo Finance: Dollar Moves Higher on Stronger-Than-Expected US Payroll Report