Morning Note: Dollar Weakens on Debt & Tariffs; Eurozone Inflation and US Manufacturing Data in Focus

Dollar Slumps as U.S. Deficit and Trade Fears Mount

The U.S. dollar index fell to a near four-year low on Monday, pressured by growing concerns over the rising U.S. fiscal deficit and ongoing uncertainty surrounding trade agreements with key global partners. Market sentiment was further shaken as Senate Republicans pressed ahead with President Donald Trump’s ambitious tax-cut and spending bill, despite internal disagreements over its projected $3.3 trillion addition to the national debt.

Meanwhile, Treasury Secretary Scott Bessent warned that sharply higher tariffs could still be imposed on July 9, even for countries currently engaged in good-faith negotiations. He emphasised that any extensions or exemptions would be at President Trump’s discretion. However, there was some progress on the trade front, as the U.S. and China reached a new understanding regarding the shipment of Chinese rare earth minerals and magnets, building upon an earlier deal signed in May in Geneva.

(U.S Dollar Index Daily Chart, Source: Trading View)

From a technical analysis perspective, the U.S. Dollar Index has been trending lower since January 2025, as reflected by a consistent pattern of lower highs and lower lows. Recently, the index broke below the previous low at the 97.13 level, continuing its decline and forming a new lower low. This confirmed bearish structure may continue to pressure the index downward until a significant bullish momentum emerges to reverse the trend.

Will Eurozone Inflation Tick Higher in June?

The Eurozone Flash Inflation Rate YoY stood at 1.9% in May. For June, the figure is expected to edge higher to 2.0%. This slight increase is likely driven by a combination of base effects from the previous year and persistent price pressures in key sectors such as energy and services. Additionally, the European Central Bank’s recent policy signals and improving consumer demand may also be contributing to the anticipated uptick in inflation. This data is set to be released today at 0900 GMT.

(EUR/USD Daily Chart, Source: Trading View)

From a technical analysis perspective, the EUR/USD currency pair has been moving in a bullish trend since January 2025, as indicated by the formation of higher highs and higher lows. Recently, it broke above the swap zone of 1.1470 – 1.1510, signalling that bullish momentum remains in control. This valid upward movement may continue to drive the pair higher, potentially retesting the resistance zone at 1.1850 – 1.1900.

U.S. Manufacturing PMI Set to Improve Slightly

The U.S. ISM Manufacturing PMI came in at 48.5 in May, indicating continued contraction in the sector. For June, the index is expected to rise slightly to 49.2. This modest improvement may reflect stabilising supply chains, a slight rebound in new orders, and resilient business sentiment. However, it still suggests overall weakness as the index remains below the 50.0 threshold that separates expansion from contraction. This data is set to be released today at 1400 GMT.

(NZD/USD Daily Chart, Source: Trading View)

From a technical analysis perspective, the NZD/USD currency pair has been moving in a bullish trend since early April 2025, as indicated by the formation of higher highs and higher lows. Recently, the bullish momentum drove the pair to break above the resistance zone of 0.6035 – 0.6060, signalling that buyers remain in control. Therefore, this valid bullish structure may potentially push the pair even higher.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.