Week ahead: Uncertainty is the New Certainty Amid the Tariff Deadline

US Jobs Report Likely Enough to Keep the Fed at Bay

Although the US dollar (USD) Index concluded another week on the back foot, it managed to recover from its worst levels, helped by Thursday’s jobs data, which showed that the US economy added 147,000 new payrolls in June (consensus: 110,000). US equities also caught a bid on the back of the upbeat jobs data, with the S&P 500 and the Nasdaq refreshing all-time highs. While the USD is overstretched to the downside in terms of COT data (Commitment of Traders) and despite the USD Index recently shaking hands with what I would consider a heavyweight long-term channel support, taken from the low of 72.70, optimism for the buck appears lacking amid Trump’s impending tariff deadline.

The USD’s reaction to Thursday’s blowout June jobs report initially caught me off guard. I expected greater follow-through upside amid the headline number surpassing the market’s median estimate and the unofficial ‘whisper number’ of around 96,000. Even though the buck did rally 0.5% in the immediate aftermath, gains were swiftly pared to end the week just north of pre-announcement levels.

However, if you look beneath the surface of the jobs data, a large portion of the job gains in the headline figure originated from government employment, which increased by 73,000; gains were especially notable in education (40,000). Private sector roles, nevertheless, grew at their slowest pace since late last year, with an increase of 74,000. This was down from 140,000 in May and considerably lower than the consensus estimate of 105,000. As a result, this indicates that hiring is slowing but not collapsing, and remains robust enough to give US Federal Reserve (Fed) members confidence to keep the rate unchanged later this month. The minutes of the Fed’s latest policy decision this week, announced on Wednesday, will also be closely eyed for any additional clues regarding future rate cuts.

Regarding when the Fed may pull the trigger and lower rates, markets have their eye on September’s meeting, with 19 basis points (bps) worth of cuts priced in and 56 bps for the year, consistent with the Fed’s latest projections. However, I think that softer inflation prints this month could push markets to lean more dovish on rates and potentially fully price in a cut for September.

This month welcomes June CPI data (Consumer Price Index) on 15 July, PPI data (Producer Price Index) on 16 July, and PCE numbers (Personal Consumption Expenditure) at the tail end of the month. Note that across all three key measures, we saw price pressures modestly tick higher in May on a year-on-year basis. And what could further drive prices higher are tariffs, with this week’s impending deadline possibly influencing this.

Uncertainty is the New Certainty

Since Trump’s ‘Liberation Day’ tariffs on 2 April and the three-month window announced on 9 April for trade negotiations, agreements between the US and its trading partners have been few and far between. Despite the headlines and hyperbole, we have limited information on any finalised trade deals, and those that have supposedly been settled are somewhat vague and limited at this stage.

Take the UK, for example. Despite Trump’s claims that the UK-US trade agreement was a ‘major trade deal,’ it has yet to be signed, sealed, and delivered. While tariffs on cars have been lowered to 10% from 25%, levies on steel and pharma goods have not been decided.

Another trade deal the US recently ‘signed’ was with China, following the two countries meeting in Geneva and the UK. However, this seemed more like an agreement to step back from what became a ridiculous back-and-forth exchange of tariffs. Things have simmered down since then, but the bottom line is that details of the current trade deal remain scarce.

The European Union (EU) has proposed accepting a 10% universal tariff on many of its exports in a bid for a trade deal with the US. However, the EU is seeking exemptions for key sectors, including pharmaceuticals and the alcohol industry. Talks are ongoing, but European Commission President Ursula von der Leyen has said that a full EU–US trade deal is ‘impossible’ by the deadline. She did note, however, that the aim is for an ‘agreement in principle’, which could be on the table before 9 July.

Then there are Vietnam, Japan, Canada, and India. Trump announced a new deal with Vietnam, implementing a 20% tariff on Vietnamese imports, a notable decrease from the previously threatened 46%. However, the final details are still being hashed out. Meanwhile, trade talks with Japan have soured, with Trump threatening tariffs exceeding those initially imposed on Liberation Day of 30% – 35%, criticising Japan as ‘very tough’ and ‘very spoiled’.

Canada has resumed trade talks with the US, aiming for a deal by mid-July after binning its digital services tax that would have impacted major US tech companies. As for India, a trade deal has also yet to be finalised. Piyush Goyal, Indian minister of trade and industry, recently commented that ‘national interest will always be supreme’. He added: India never does any trade deal on the basis of deadline or timeframe […] we will accept it only when it is completely finalised and in the national interest’.

As a result, speaking from Joint Base Andrews Air Force Base in Maryland on Thursday, Trump stated that letters will be sent to various countries, essentially notifying them that their time is up and outlining their new tariff rates, effective 1 August. Still, in usual Trump fashion, specifics about which countries would be affected and their respective tariff rates were ambiguous. However, the President did say that there would be approximately 10 letters per day going out, starting last Friday, and levies would ‘range in value from maybe 60% or 70% tariffs to 10% and 20%’.

In light of the current progress since the 90-day pause was announced, and despite officials touting ’90 deals in 90 days’, I find it very hard to believe that we’ll see a ‘flurry of trade deals’ make it across the line before 9 July, as US Secretary Scott Bessent recently expressed in an interview on Bloomberg Television. There will, of course, be some countries that manage to put pen to paper, no doubt, though there will also be plenty that fail to meet the deadline. While extensions may be granted, there is a chance that those countries will revert to their initial tariffs before the 90-day pause took effect, which could move the market’s dial.

Additional Risk Events to Note This Week

• Reserve Bank of Australia (RBA) gearing up for another rate cut

Markets are widely pricing in another 25 bp cut for the RBA on Tuesday at 4:30 am GMT, with two additional rate cuts potentially on the table this year. A rate reduction this week would lower the cash rate to 3.60% from 3.85%, marking the third rate cut this year, following the 25 bp reduction in May.

• Reserve Bank of New Zealand (RBNZ) is expected to remain on hold

According to market pricing, investors are leaning towards the RBNZ pressing the hold button on Wednesday at 2:00 am GMT, leaving the cash rate at 3.25%. This follows three consecutive rate reductions this year, totalling 100 bps of easing.

• UK GDP

Friday features May UK GDP data (Gross Domestic Product). Economists suggest that UK economic activity grew by 0.1% month-on-month in May, up from -0.3% in April.

• Canadian employment

Unemployment is forecast to have increased to 7.1% in June – the highest level since August 2021. Employment is also projected to have increased by 10,000 last month, following a rise of 8,800 in May.

Written by FP Markets Chief Market Analyst Aaron Hill

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