NFP, ISM, and Eurozone CPI in focus this week

Dollar weakens as trade diplomacy reshapes G10 flows

The US Dollar started the week on the back foot, extending losses from last Friday amid a combination of easing geopolitical risks and growing expectations of a dovish shift by the Federal Reserve later this year. The Dollar Index edged lower in early Asian trading, with the greenback broadly weaker against its G10 peers.

The Japanese Yen emerged as the day’s top performer, benefiting from lingering safe-haven demand following recent Middle East tensions. The Canadian Dollar, after suffering sharp losses over the weekend, rebounded modestly following Ottawa’s decision to cancel its controversial digital services tax. Meanwhile, commodity-linked currencies like the Kiwi and Aussie posted moderate gains, supported by broader risk appetite.

Canada drops digital tax to avert trade war with US

In a significant policy reversal, Canada announced it would scrap its planned digital services tax on American tech firms, just days before its scheduled implementation. The tax had drawn a stern warning from Washington, with President Trump threatening to suspend all ongoing trade talks with Canada and impose retaliatory tariffs.

Canadian Prime Minister Mark Carney framed the decision as a strategic concession to preserve the upcoming July 21 negotiation deadline for a broader economic and security agreement. Finance Minister François-Philippe Champagne emphasized the importance of “keeping dialogue open.”

The Loonie clawed back some of its weekend losses, but analysts noted that overall sentiment remains fragile with the July US tariff deadlines looming.

UK activates partial US trade deal but key issues remain

The British Pound held steady near $1.37 after the UK confirmed that its new partial trade agreement with the US has come into effect. The deal includes reduced tariffs on British car exports and the elimination of duties on aircraft parts, offering some relief to UK exporters.

However, major sticking points remain. Steel and aluminum tariffs are still unresolved, and UK officials reiterated their intention to negotiate for 0% tariffs on core steel products under the new framework. With US-EU trade negotiations also heating up, the UK continues to push for more favorable terms before the broader tariff truce expires next month.

US NFP and ISM data take center stage as Fed stays patient

The upcoming US Non-Farm Payrolls (NFP) report for June will be a key event for markets this week. Recent speeches by Fed Chair Jerome Powell and other policymakers suggest that while the Fed remains open to cuts later this year, a July move remains highly unlikely without a significant deterioration in labor market conditions.

Economists expect solid but slowing job growth. Unless the NFP print is significantly weaker than forecast, markets are likely to stick with September as the base case for the Fed’s first cut this cycle. Futures currently price in a 56% probability of three total cuts this year.

In addition to payrolls, markets will scrutinize the ISM Manufacturing and Services PMIs, with particular focus on the employment and price components. The ISM data could provide important clues on whether the tariff-driven inflation concerns flagged by the Fed are beginning to show up in corporate surveys.

Eurozone CPI and ECB minutes to shape Euro outlook

On the European front, the June flash CPI and the ECB meeting accounts will be key for traders this week. The Euro has held steady, but sentiment remains divided over whether the ECB will deliver another rate cut in September.

Market pricing suggests a bias toward one more move, but recent survey data shows a lack of consensus. The ECB minutes may offer critical insights into internal discussions on the inflation outlook and whether policymakers feel comfortable pausing for now.

A softer-than-expected CPI print could revive rate cut bets and weigh on the Euro, while a hawkish tone from the minutes may push expectations toward a hold.

Week ahead: Key economic releases and events

Here is a snapshot of this week’s major data and event highlights:

• Tuesday: Japan Tankan survey, China Caixin Manufacturing PMI, Eurozone CPI flash, Germany unemployment, US ISM manufacturing
• Wednesday: Australia retail sales, Eurozone unemployment, US ADP jobs report, Canada manufacturing PMI
• Thursday: ECB meeting minutes, US NFP, US jobless claims, US ISM services, US trade balance
• Friday: Japan Tokyo CPI, Germany factory orders, Eurozone PPI, US in holiday