“A week is a long time in politics” seems rather apt as a well-known phrase to depict how quickly things can change in the (geo)political arena. After becoming a temporary expert on ‘bunker bombs’ and ‘uranium enrichment’ among other topics, markets have moved on quickly with the oil price also not an indicator worth watching too much anymore. Instead, we go back to analysing macro data and trade news, with the dollar dumping, the Fed and record-breaking stock markets on the radar.
The US July 4 Independence Day holiday on Friday means we get the non-farm payrolls data actually on Thursday. A relatively solid report is expected though as always, one eye should be on revisions to the headline numbers. Surveys continue to point to a softer labour market going forward, with Fed rate cut expectations ramping up in recent days. Having been stuck in recent weeks around 50bps of cuts in the second half of 2025, with 25bps moves favoured in September and December, money markets are now getting close to a 50% probability of a third 25bps reduction before the year is out.
That has hit the dollar with fresh multi-year lows, while stock markets have made more record highs on potentially positive trade deal news too. Those trends don’t look like they should change in the near term, even as the three-month tariff deadline comes into play next week. ‘TACO’ is obviously relevant here, so we should probably expect some volatility. The Fed independence theme also certainly does not help the greenback, though any agreement on the spending bill has the capacity to support a dollar comeback after Trump said he hopes to see something ahead of July 4.
By helping weaken USD, lower US rates have also pushed the euro stronger, weighing down on the eurozone’s inflation outlook. Rate setters at the ECB are well aware of the disinflationary impact a stronger euro has on its macroeconomic projections. An appreciating single currency both cheapens imports and can act as a growth headwind through exports. Softer oil prices also mean downside risks seem to dominate the inflation outlook at the moment, with Tuesday’s latest eurozone price data on the radar.