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The US session on July 4, 2025, is expected to be subdued due to the Independence Day holiday, with US markets closed. However, forex and commodity markets remain active, influenced by several key factors. These include stronger-than-expected US Nonfarm Payrolls (NFP) data for June, which showed a gain of 147,000 jobs against an expectation of 110,000, leading to a drop in the unemployment rate to 4.1% from 4.2%. Rising US yields and anticipation of significant trade developments, specifically the signing of President Trump’s “Big, Beautiful Bill” at 5:00 PM EST, are also driving market sentiment. Additionally, European Central Bank (ECB) speeches and upcoming economic data from Europe will play a role in shaping market dynamics. This analysis incorporates recent market shifts, including the behavior of GBP/USD and EUR/USD, and broader policy implications, maintaining a focus on policymakers and a balanced perspective.
Forex Market Updates
The US Dollar Index (DXY) climbed to weekly highs near 97.40, largely supported by the robust NFP data and rising US yields across various maturities. The positive NFP report, along with an improvement in the ISM Services PMI to 50.8 from 49.9, has significantly reduced market expectations for a Federal Reserve rate cut this month, with doubts even emerging about the prospect of three cuts by year-end. This strength in the DXY reflects a resilient US economy, further reinforced by Atlanta Fed President Raphael Bostic’s “wait-and-see” approach to monetary policy, particularly given the inflation risks associated with tariffs. While holiday-related low liquidity might temper volatility, the upward trend in the USD is expected to persist.
The EUR/USD pair dropped to a three-day low near 1.1716, currently trading at 1.1744, a decline of 0.45%. This decline follows its failure to sustain year-to-date highs above 1.1800, primarily pressured by a stronger USD and higher yields. Upcoming economic data from Germany, including Factory Orders and the HCOB Construction PMI (which remained contractionary at 49.7), along with Eurozone PPI data, will be closely watched. Speeches by ECB President Lagarde and board member Elderson are also anticipated to provide further policy clues, especially after the recent ECB Minutes revealed some internal resistance to the June rate cut, signaling caution. The euro’s decline is largely dollar-driven, with the 1.1700 level acting as critical technical support. A breach below this could target 1.1631 (June 12 high), while a recovery above 1.1800 could test the yearly peak at 1.1829. Any hawkish commentary from the ECB, particularly regarding inflation, could shift sentiment.
GBP/USD has shown some recovery, climbing above 1.3600 and testing a rising trendline after a midweek dip. This recovery is attributed to a slightly weaker USD post-NFP and stabilization in UK gilts. Key upcoming data includes the UK S&P Global Construction PMI and New Car Sales, along with a speech by Bank of England (BoE) policymaker Alan Taylor, though the latter is unlikely to significantly impact the market. UK Prime Minister Keir Starmer’s challenges in delivering promised welfare cuts while keeping tax hikes on the table are fueling fiscal concerns, which may limit the upside for the pound despite its technical recovery. While GBP/USD remains in bullish territory, it faces resistance near 1.3769–1.3800. Its recovery remains fragile due to the UK’s economic slowdown and political uncertainties. While positive UK data could offer short-term support, broader fiscal challenges are likely to cap gains.
USD/JPY surged past 145.00 to multi-day highs, driven by the strong USD and higher US yields, consolidating within the 142–148 range. Upcoming Japanese Household Spending data could influence yen sentiment. The yen continues to show weakness due to Japan’s low interest rates. UBS predicts a potential decline to 140 by year-end as US-Japan rate differentials are expected to narrow, advising caution for those holding bullish positions.
AUD/USD eased after three consecutive daily gains, trading near 0.6600 within a consolidative range. This movement is primarily due to the strong USD and broader global growth concerns. The Reserve Bank of Australia (RBA) meeting on July 8 is anticipated to result in unchanged rates. The AUD’s range-bound trading reflects caution ahead of the RBA decision and the ongoing economic slowdown in China. The 0.6600 level remains a pivotal point, with potential breakouts dependent on the RBA’s forward guidance.
USD/CAD gained 0.81% against the euro this week, largely reflecting the broad strength of the US dollar. The Canadian dollar has weakened amidst USD dominance, and there are no major Canadian data releases scheduled for July 4. Traders should closely monitor oil prices and US trade policy developments, given Canada’s export-driven economy.
Commodities
WTI Crude Oil fell to around $67.00 per barrel, giving up recent gains. This decline is largely attributed to easing tensions in the Middle East and the reduced liquidity driven by the holiday. Global demand concerns, particularly from China, and upcoming US inventory data will be crucial in shaping near-term trends. The July 9 tariff deadline could introduce significant volatility if trade tensions escalate further.
Gold (XAU/USD) dropped to $3,300 per troy ounce, consolidating around $3,330. This decline is a result of the stronger USD and higher yields following the robust NFP data. Gold’s bearish slope is currently limited above $3,325. However, safe-haven demand could re-emerge if trade war fears intensify, especially with the impending signing of Trump’s “Big, Beautiful Bill”—a $3.4 trillion fiscal package involving tax cuts and reduced safety-net spending—which could potentially stoke inflation.
Silver rose to a two-week high above $37.00 per ounce, outperforming gold. Silver’s gains reflect robust industrial demand and overall resilience within the commodity market. However, the strength of the US dollar may limit further upward movement.
Policy and Trade Developments
In US policy, President Trump’s “Big, Beautiful Bill,” which has passed Congress, includes significant tax cuts and reduced spending on safety-net programs, effectively reversing some of the Biden administration’s clean-energy policies. The bill’s signing on July 4 could intensify market focus on tariff-related inflation risks, a concern also noted by Federal Reserve’s Bostic.
The looming July 9 tariff deadline poses a significant risk to USD pairs and commodities. Asian markets are closely watching developments between Washington and Tokyo, with Trump’s new bill eliciting mixed sentiment globally.
Within the ECB, the recent Minutes revealed dissent over the June rate cut, indicating a cautious approach. President Lagarde’s upcoming speech will be crucial in clarifying the central bank’s future policy direction, which will undoubtedly impact EUR/USD.
In the UK, Prime Minister Starmer’s struggles with fiscal policy and the Bank of England’s steady stance are expected to limit the pound’s recovery potential, despite some technical support.
Market Sentiment and Outlook
The US dollar’s rally, fueled by strong NFP data and rising yields, has caused a significant recalibration of Federal Reserve rate cut expectations, with markets now anticipating a more restrictive monetary policy stance through July. While the US holiday will lead to dampened volatility, speeches from ECB officials, upcoming European economic data, and developments in trade policy could drive intraday market movements. The signing of the “Big, Beautiful Bill” introduces long-term inflationary risks, which could potentially further support the USD and exert pressure on safe-haven assets like gold if risk sentiment shifts. Finally, the RBA’s July 8 decision and the various tariff deadlines remain key catalysts for the markets in the coming days.
