USD: Is this week big and beautiful? - ING

The first half of July could prove pivotal for the FX market, with three events in focus: the Senate vote on the "One Big Beautiful Bill Act" (OBBBA), which US President Donald Trump wants passed by 4 July, Thursday's US jobs data, and the expiration of the reciprocal tariff pause on 9 July. Yesterday, the OBBBA cleared a narrow Senate hurdle, passing the motion to open the debate by a 51-49 margin. Amendment votes begin today, though most are expected to fail. Whether the bill in its current form has enough support to return to the House remains uncertain, with eight GOP Senators reportedly opposed. Meanwhile, the Congressional Budget Office now estimates the amended bill would add $3.3tr to the debt over the next decade, up from $2.8 trillion for the House version - hardly encouraging news for US fiscal prospects, ING's FX analyst Francesco Pesole notes.

Markets are fully pricing in a September Fed cut

"However, the dollar has not traded actively on the deficit story as of late; after all, an important reaction from Treasuries is needed to spill over into FX. It may well play a role in medium-term considerations that are keeping the dollar weak, but it's hard to isolate its effect in that context. The near-term dollar story seems to hinge almost entirely on the Federal Reserve, and even the incumbent 9 July tariff deadline appears to be secondary."

"Markets are fully pricing in a September cut, and roughly one in five chances of a July cut. This is markedly dovish relative to the latest cautious Fed communication, but given that two FOMC members have openly discussed a July move, markedly disappointing data this week could prompt another round of heavy dollar selling. The biggest release is undoubtedly Thursday's jobs report, which directly speaks to the second part of the Fed's mandate. Payroll's consensus is 113k, Bloomberg's whisper number is 104k, and our call is 100k, which probably wouldn't be enough to trigger heavy betting on a July cut."

"Ahead of payrolls, the dollar remains highly sensitive to incoming data, with ISM manufacturing and JOLTS figures due tomorrow and ADP payrolls on Wednesday. The balance of risks remains tilted to the downside for the dollar, but our calls for only a gradual slowdown in payrolls and an inflation bump in the coming months imply that markets have overshot on dovish pricing. A September cut may be ultimately priced out, and some short-term support for the dollar should emerge. Conversely, a major payrolls disappointment can send DXY below 96.0 even without the OBBBA and tariff factors."