Dollar Drifts Ahead of US Payrolls; Vietnam Trade Deal Boosts Sentiment
Updated: 3 July 2025
The US dollar traded cautiously on Thursday as investors balanced optimism from a new trade deal with Vietnam against uncertainty around the June payrolls report. With a key tariff deadline set for July 9, a flurry of market-moving developments are taking center stage.
📈 Vietnam Trade Agreement Lifts Confidence
President Trump confirmed a new trade accord with Vietnam pegging tariffs at 20% on Vietnamese exports and 40% on trans-shipped goods, aiming to reshape supply chains and reduce trade tensions
Markets responded positively: Wall Street indices rose, while Asian shares showed mixed results. However, the Vietnamese dong dropped to record lows amid concerns over export competitiveness
Investors are also monitoring China’s possible reaction, as the deal signals more aggressive trade reshuffling
🕵️♂️ Dollar Index Near Lows
The DXY dollar index, measuring the greenback against six peer currencies, has hovered around 96.7–96.9—levels not seen in over 3½ years :contentReference[oaicite:5]{index=5}, and is down approximately 0.5% for the week
While Sterling recovered slightly after a 1% drop tied to UK fiscal jitters, the euro held firm near $1.18 and the yen crept back to ¥143.5–143.8 per dollar :contentReference[oaicite:7]{index=7}.
👀 Eyes on US Payrolls
Traders are preparing for the Labor Department’s non-farm payrolls release on Thursday, following an unexpected pullback in the private ADP report. The ADP data showed a rare decline of 33,000 private-sector jobs in June—the first drop in over two years
The surprise has shifted markets to price in a 25% chance of a Fed rate cut in July—up from 20% just a day earlier, according to CME’s FedWatch tool
As Saxo strategist Charu Chanana noted, “What could earlier have been interpreted as ‘bad news is good news’… may now simply be seen as bad news, especially if recession concerns take hold”
📉 Weak ADP Underlines Labor Market Stress
The ADP decline follows a similar trend highlighted by Reuters: private payrolls dropped 33,000 jobs in June, reversing May’s modest gains :contentReference[oaicite:11]{index=11}.
Despite low layoff numbers, hiring in sectors like professional services and education slowed significantly, adding to signs of a cooling labor market
Yet economists caution that ADP and BLS data often diverge, and ADP is just one piece of the puzzle
📊 Broader Economic Snapshot
Additional indicators point to broader US economic softness:
- Official non-farm payrolls are expected to show gains around 110,000 jobs with unemployment ticking to ~4.3%
- Jobless claims are lingering near two-million plus—levels last seen in 2021
- Q1 GDP was revised to a slight contraction (~‑0.5%), as consumer spending cooled
💵 Implications for Fed Policy
The ADP surprise, combined with weaker growth signals, has reignited speculation that the Fed may pivot to rate cuts sooner—possibly in September :contentReference[oaicite:17]{index=17}.
However, Chanana’s warning is notable: if the June payrolls disappoint, markets may react negatively even if rate cuts become more likely :contentReference[oaicite:18]{index=18}.
Meanwhile, a major Republican-led tax and spending bill increasing the national debt by ~$3.3 trillion has raised fiscal concerns and could complicate market sentiment :contentReference[oaicite:19]{index=19}.
🌐 What Traders Should Watch
- June non-farm payrolls: Beats or misses could swing FX, equities, and yields sharply.
- Fed outlook: Look for language hinting at a shift in rate policy.
- Vietnam deal execution: Additional trade pacts could support global risk assets.
- Debt trajectory: Watch US Treasury yields and credit risk on the tax/spend proposal.
For ongoing updates, visit our Markets section or check the Fed Watch feed. Also see our coverage on US trade policy and US labor data analysis.
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