Tariffs, US Fiscal Crisis Drive Euro Sharply Higher
The EUR/USD pair pared some losses on Friday (04/07), trading at 1.1785 at the time of writing, having bounced off a low of 1.1715 on Thursday. The dollar surrendered post-NFP gains with US markets closed for the Independence Day holiday, and investors’ focus shifting to the US tariff deadline on July 9.
Given the lack of progress on the trade deal, Trump confirmed that he will begin sending letters to trading partners on Friday, informing them of the levies that will be imposed on their products. Market concerns that high tariffs could increase inflation and lower economic growth have been a major drag on the US dollar since April’s “Liberation Day.”
Beyond that, Trump’s “big, beautiful tax bill” passed House scrutiny on Thursday and is likely to become law in the coming days. The Congressional Budget Office estimates that the bill would increase the current fiscal deficit of $39.2 trillion by $3.3 trillion over the next 10 years, raising concerns about a debt crisis in the world's major economies and has been another source of downside pressure on the US dollar.
The US dollar jumped on Thursday as the Nonfarm Payrolls report showed that the US economy created more jobs than expected in June, highlighting the resilience of the labor market and dampening expectations of an imminent interest rate cut by the Federal Reserve. The odds of a Fed rate cut in July have fallen to 5%, from around 20% before the data was released, according to the CME Group's Fed Watch Tool.
Source: FXStreet
