【Finance Blog｜Local Market Insights】

The currency markets have been on edge over the past week, with the U.S. dollar taking center stage. Despite stronger-than-expected U.S. job opening data, expectations for a Federal Reserve rate cut are still on the rise. This drove the dollar lower on Tuesday, with the U.S. Dollar Index falling as much as 0.51% to hit a recent low of 96.377.

According to the latest JOLTS report from the U.S. Department of Labor, job openings rose unexpectedly in May to 7.769 million, up from 7.395 million in April — the highest level since November last year. This signals resilience in the labor market, but investors interpreted the news through a dovish lens: a strong enough economy could give the Fed room to cut rates without risking instability. As a result, bets on near-term rate cuts gained further momentum.

Federal Reserve Chair Jerome Powell reiterated recently that the central bank would remain cautious and data-driven, but notably did not rule out the possibility of a rate reduction. This ambiguity further fueled speculation, with some analysts now assigning a 20% probability of a July rate cut.

Adding to the market narrative, the U.S. Senate just passed a bill that includes both tax cuts and increased government spending. If enacted, it could result in over $3 trillion in additional debt. While this gave the dollar a temporary lift, it also reignited concerns about long-term U.S. fiscal sustainability.

Looking across major currency pairs, the Japanese yen saw the biggest gains against the dollar, rising as much as 0.94% to trade at 142.68 yen per dollar. The euro also moved higher, reaching 1.1829 against the greenback — a 0.36% increase. The British pound benefited from domestic political stability, helped by the passage of Prime Minister Rishi Sunak’s new welfare plan, which pushed sterling higher against the dollar. Meanwhile, the Swiss franc strengthened briefly, with the dollar dropping 0.28% before retracing some of the losses.

It’s worth noting that as of the first half of the year, the U.S. Dollar Index has recorded its steepest first-half decline since 1973. Uncertainty over tariff policies and inconsistent economic indicators have been major headwinds. But with recent data showing early signs of stabilization, there may be room for sentiment to recover gradually.

In the Asian markets, the USD/HKD pair held steady at 7.85 on July 1, slightly above its level at the start of the year, showing the U.S. dollar is still holding relatively firm in the region. However, if the Fed sends clearer signals about future rate cuts, the dollar could face renewed downside pressure.

Looking ahead, all eyes will be on upcoming inflation, employment, and consumer spending figures in the U.S., along with comments from Federal Reserve officials, which could offer clues on the next policy move. In the near term, currency markets are likely to remain volatile, and global capital flows will be a key theme to watch.

For investors, maintaining a flexible approach to asset allocation is essential. Stay agile, monitor macro trends closely, and begin laying the groundwork for the second half of the year.