July 03, 2025

“Speculation about the British Chancellor’s job security saw the pound fall almost 1.5% at the peak of the selloff yesterday, as the UK’s fiscal struggle remains a source of weakness. Today is all about non-farm payrolls, which could push the Fed to cut earlier if it is weak.”

Sam Cornford – Head of Trading

USD

A trade deal with Vietnam produced some optimism for US assets yesterday, but nervousness about the labour market has kept the dollar subdued. While ADP employment change has historically been a terrible predictor for the official non-farm payrolls report, the first negative print in two years (-33K) was hard for investors to ignore. A similarly significant downside surprise in today’s payrolls report could do some real damage to the dollar, as markets move to price in a rate cut in July. The consensus estimate has moved around throughout the week, but it now sits at 106K. Unemployment is also anticipated to tick up from 4.2% to 4.3%. We also get the ISM services PMI this afternoon, expected at 50.8, and eyes will be on the OBBBA pushing through the House and any other trade developments.

GBP

Sterling sank nearly 1.5% intraday yesterday after Starmer failed to wholeheartedly back Chancellor Reeves when asked to do so in PMQs. That and her tears in the background sparked fears that she was soon to lose her job and that it could weaken the Treasury’s commitment to fiscal responsibility. The Truss-like scenario of rising gilt yields and a weaker pound briefly returned, as it often has whenever attention has been drawn to the UK’s fiscal challenges. Typically, higher gilt yields are an unambiguous positive for the pound. It has recovered strongly today, however, as Starmer has now fully backed Reeves and said that she would be in the job for many years. This all comes after a humiliating rebellion from Labour MPs wiped out the planned £5bn in welfare savings pencilled in at the last fiscal event in the spring.

EUR

The euro has been hovering below the 1.18 mark for much of the week, and today’s US payrolls report will be the determinant for whether it can push closer to 1.20. The headlines from the eurozone this week have generally surrounded the astonishment from policymakers at how quickly the euro has gained this year and concerns about what might happen to inflation if it continues. There have been few new catalysts, however, and the US macroeconomic story is dominating right now. In Switzerland, an upside surprise on inflation this morning (at 0.1% vs -0.1% expected) has boosted the franc slightly.

Markets

The dollar may continue to struggle, but US equities are still pushing through record highs. Yesterday’s trade deal announcement with Vietnam benefitted apparel stocks like Nike, and tech stocks recovered broadly.

Main Economic Events (All Times CET)

8:30am: Switzerland CPI
2:30pm: US Non-Farm Payrolls
4:00pm: US ISM Services PMI

To learn more about Ballinger Group, please visit our website or our LinkedIn page.