The U.S. dollar began the week under clear pressure following President Donald Trump’s decision to postpone tariffs on European Union imports until July 9, after a phone call with European Commission President Ursula von der Leyen. Markets interpreted this move as a tactical retreat, temporarily easing trade tensions and boosting risk appetite in equity markets, which in turn negatively impacted the dollar’s performance.
On the other hand, the repercussions of the tax cut bill passed by the U.S. House of Representatives continue to cast a shadow over the financial landscape. Estimates suggest that the bill will add approximately \$3.8 trillion to the national debt over the next decade, posing a fundamental strain on the dollar’s long-term outlook.
Technically, the U.S. Dollar Index (DXY) dropped by 0.3% to its lowest level in over a month before recovering part of its losses later in the session. Futures on the index recorded a similar decline, indicating that bearish momentum remains in place amid a lack of clear economic catalysts and increased market sensitivity to any political developments.
Despite the dollar’s weakness, gains in Asian currencies remained limited, reflecting ongoing caution. The Chinese yuan stood out, with the USD/CNY pair falling to its lowest level since November 2024. Meanwhile, the Japanese yen posted only modest gains following comments from the Bank of Japan Governor, who hinted at the possibility of interest rate hikes, supported by positive inflation and wage data.
The EUR/USD pair rose by 0.5% during the session before settling with modest gains. This technical movement was driven by a positive reaction to signs of easing tensions between Washington and Brussels, although confidence in this direction remains limited due to contradictory messages from the U.S. administration. Elsewhere, the Australian dollar climbed 0.3%, supported by improved global risk sentiment, despite the lack of impactful local economic data.
Markets remain in a wait-and-see mode, cautiously navigating the unpredictable political moves coming from the United States—whether in trade or fiscal policy. The U.S. dollar remains vulnerable to further volatility in the absence of supportive economic signals, while Asian and Western currencies continue to trade within narrow ranges, awaiting clearer developments on trade negotiations or key economic data.
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