The US dollar started July under pressure, losing ground against the euro, yen, and pound as forex investors scrutinized the latest developments in US fiscal and trade policy. Central to the week’s risk narrative is President Donald Trump’s ambitious tax reform bill, aiming to deliver sweeping corporate tax cuts. If passed by Friday, the legislation could add at least $3T to US public debt and reduce budget revenues by $4.5T over the next decade. While a short-term economic boost is possible, analysts warn of an inevitable fiscal correction and increased inflationary risks.

Meanwhile, comments from US Treasury Secretary Scott Bessent reinforced market caution: with a July 9 deadline set for striking new trade deals, the White House will ultimately decide which bilateral talks continue. This uncertainty compounds headwinds for the greenback, especially as Washington faces potential escalation of tariff disputes.

Eurozone: Euro Advances Against Dollar, Mixed Moves vs Yen and Pound

The euro continued its rally versus the US dollar but softened against the yen and posted mixed performance against the pound. Focus remained on euro area inflation data: preliminary June CPI rose from 0.0% to 0.3% month-over-month and from 1.9% to 2.0% year-over-year, while the core index climbed from 0.0% to 0.4% MoM, holding at 2.3% YoY.

This stabilization around the ECB’s 2% target was attributed to lower energy and manufactured goods prices offsetting ongoing service sector pressures. ECB chief economist Philip Lane stated that the central bank’s monetary tightening cycle is essentially over, as inflation has dropped from peaks of 10% to the current target zone.

UK: Pound Strengthens on Dollar, Weakens Against Yen and Euro

Sterling extended gains against the US dollar while showing relative weakness versus the yen and a mixed pattern against the euro. BoE Governor Andrew Bailey, in a CNCB interview, flagged a cooling UK labor market and warned that global uncertainty is weighing on growth and investment sentiment. Bailey reiterated that the Bank is ready to act against any entrenched inflation, with a 25-basis-point rate cut widely anticipated at the next meeting.

Nationwide’s June housing price index reported a monthly drop of –0.8% (forecast: –0.2%) and a deceleration in annual growth from 3.5% to 2.1%. Analysts attribute the slowdown to weaker demand following changes in stamp duty. Nonetheless, the likelihood of renewed housing activity remains as borrowing costs ease.

Japan: Yen Surges on Improved Manufacturing and Sentiment

The Japanese yen gained across the board following strong macro data. The June manufacturing PMI returned to expansion territory for the first time in 13 months, rising from 49.4 to 50.1, though new orders and sales growth remain subdued. The Tankan index for large manufacturers improved to 13.0 (forecast: 10.0), while the non-manufacturing gauge moderated slightly to 34.0.

The Bank of Japan now faces conditions ripe for a rate hike: robust economic performance and inflation consistently above 2%. Still, trade tensions with the US cloud the outlook, as talks stall and President Trump threatens new tariffs on Japanese imports.

Australia: AUD Weakens Against Majors, Retail Sales Awaited

The Australian dollar posted losses against the euro, pound, and yen, while trading mixed against the US dollar. June manufacturing PMI edged lower to 50.6 (from 51.0) but stayed in expansion. Focus now shifts to May retail sales data due Tuesday: a rise of 0.3% is expected after April’s –0.1%, potentially supporting the Aussie if confirmed.

Oil: Brent and WTI Eye OPEC+ Output Decision

Oil prices attempted moderate gains as traders awaited the latest OPEC+ meeting, where the cartel is considering an additional production hike of 411,000 barrels per day for August—building on increases from May through July. Such a move could weigh on prices in the medium term, particularly as geopolitical risk premia fade following Middle East de-escalation.

Traders also track API inventory data: if a further drawdown (below last week’s –4.277M barrels) is confirmed, this may lend short-term support to crude.

Summary: Forex Market Faces Crosswinds

Dollar weakness persists on policy and fiscal uncertainty, while the yen rallies on strong domestic data and the euro stabilizes as ECB tightening winds down. Oil markets remain in focus ahead of OPEC+ output decisions, with volatility set to rise as macro and geopolitical drivers converge in early July.