The dollar was broadly weaker last week due to a combination of weak US data and repricing of Fed easing expectations. CHF, GBP, and SEK outperformed while NOK, CAD, and JPY underperformed. While most Fed officials are willing to wait and see before cutting, we see growing evidence of a US slowdown. This week brings key June data that should confirm this thesis and feed into further dollar weakness. We are also likely to get ongoing uncertainty regarding US fiscal and tariff policies.

AMERICAS

GOP leaders are racing to have the One Big Beautiful Bill Act (OBBBA) bill completed by his Friday deadline. With the Senate still struggling to pass its version of the bill, we believe it will be very difficult to then get a compromise bill that can be approved by both the House and Senate by Friday. Of note, the CBO estimates that the current version of Senate bill would add $3.3 trln of budget deficits over the next ten years due to a $4.5 trln decrease in revenue and a $1.2 trln decrease in spending. For comparison, the CBO estimates increased deficits of $2.8 trln for the House bill.

Tariff noise is likely to pick up this week as the July 9 deadline approaches. Some minor deals may be announced this week, but we do not think any deals with the EU, China, or Japan are likely to be struck. With regards to extending the pause, President Trump said “I don’t think I’ll need to” but then added “I could, no big deal.” He also said “I’d like to make it shorter. I’d like to just send letters out to everybody, ‘Congratulations, you’re paying 25%.’” Another round of arbitrarily high tariffs probably would not be taken well by the markets.

Such an outcome would keep the Fed cautious. Indeed, most Fed officials appear to be ruling out a July cut. Barring a total collapse in the economy, we concur. Odds of a July cut are around 20% while a cut is fully priced in for September. Looking ahead, the swaps market is now pricing in 100 bp of total easing over the next 12 months, with 40% odds of a fifth 25 bp cut. This likely reflects expectations that Powell’s replacement will be much more dovish. Bostic and Goolsbee speak Monday. Powell speaks Tuesday. Bostic speaks Thursday.

Data highlight will be the June jobs report Thursday. Bloomberg consensus for June NFP is 113k vs. 139k in May, while its whisper number stands at 106k. For reference, NFP averaged 149k per month over the past twelve months while the breakeven pace of job gains needed to keep the unemployment rate stable is between 80k and 100k. We see risks of a sub-100k print after continuing jobless claims rose to the highest level since early November 2021. The unemployment rate is expected to rise a tick to 4.3%, while average hourly earnings are expected to fall a tick to 3.8% y/y. Ahead of the jobs data, ADP reports its private sector jobs estimate and is expected at 90k vs. 37k in May.

June ISM PMIs will also be important. Manufacturing will be reported Tuesday, with headline expected to pick up two ticks to 48.7. Keep an eye on prices paid, which is expected to rise a tick to 69.5. The regional Fed ISM manufacturing prints suggest risks are skewed to the upside. Of note, the US S&P Global manufacturing PMI was unchanged in June at 52.0, a four-month high. Services will be reported Thursday, with headline expected at 50.6 vs. 49.9 in May. The regional Fed ISM services prints suggest risks are skewed to the upside. Of note, the S&P Global services PMI dipped in June to a two-month low at 53.1 vs. 53.7 in May. Chicago PMI will be reported Monday and is expected at 42.9 vs. 40.5 in May.

Other labor market data will be reported this week. May JOLTS data will be reported Tuesday. Job openings are expected at 7.300k vs. 7391k in April. In April, the JOLTS data was consistent with a labor market roughly in balance as the unemployment-to-job opening ratio remained at 1 for a second consecutive month. Meanwhile, the layoffs and hiring rates both rose 0.1 ppt to 1.1% and 3.5%, respectively. June Challenger job cuts will be reported Wednesday. Weekly jobless claims will be reported Thursday.

May trade data will be reported Thursday. The trade deficit in both goods and services is expected at -$71.1 bln after narrowing at a record pace in April to -$61.6 bln, which was the smallest since 2023 and due to a tariff-related -16.3% m/m record plunge in imports.

The growth outlook is deteriorating. The New York Fed Nowcast model now estimates Q2 growth at 1.7% SAAR vs. 1.9% the previous week and Q3 at 1.9% SAAR vs. 2.1% the previous week. These latest readings aren't bad but are clearly decelerating after weeks of strength. They will be updated Friday. Elsewhere, the Atlanta Fed GDPNow model now estimates Q2 growth at 2.9% SAAR vs. 3.4% previously. It will be updated Tuesday.

S&P Global reports June Canada PMIs this week. Manufacturing will be Wednesday. Services and composite will be reported Friday. Ivey PMI will be reported next week. All readings are in contractionary territory for the economy.

EUROPE/MIDDLE EAST/AFRICA

The European Central Bank holds its annual forum in Sintra this week. Guindos and Lagarde speak Monday. Guindos, Elderson, Schnabel, and Lagarde speak Tuesday. Guindos, Cipollone, Lane, and Lagarde speak Wednesday. Villeroy and Villeroy speak Friday. Elderson, Centeno, Makhlouf, and Stournaras speak Saturday.

Eurozone June CPI data will continue to roll out. Germany and Italy report Monday. Germany is expected to pick up a tick 2.2% y/y and Italy is expected to pick up a tick to 1.8% y/y. Eurozone-wide CPI data will be reported Tuesday. Headline CPI inflation is expected to pick up a tick to 2.0% y/y and core CPI inflation is expected to remain steady at 2.3% y/y. Both are currently around the 2% target. However, services inflation (3.2% y/y in May) still has some distance to travel to make sure that inflation stabilizes at the target on a sustainable basis. Bottom line: the ECB is nearly done easing. The swaps market implies one 25 bp rate cut over the next 12 months that would see the policy rate bottom at 1.75%.

ECB May inflation expectations will be reported Tuesday. 1-year expectations have been rising steadily, while 3-year expectations have leveled out around 2.5%.

The European Central Bank publishes the account of its June meeting Thursday. At that meeting, the ECB trimmed the policy rate 25 bp to 2.00%, as expected. Only one Governing Council member didn’t support the decision to cut. Importantly, President Lagarde stressed that the ECB is likely “getting to the end of the monetary-policy cycle.” This view has since been echoed by a majority of governing council members.

U.K. June DMP inflation expectations will be reported Thursday. 1-year expectations are expected to remain steady at 3.0%. 3-year expectations printed at 2.7% for a second consecutive month in May. Inflation expectations are contained despite both series still above their series lows of 2.5% in October 2024.

We expect the Bank of England to cut rates August 7. The swaps market sees 75% odds of a cut then and is pricing in 75 bp of total easing over the next 12 months. Bailey speaks Tuesday. Taylor speaks twice Wednesday. Taylor speaks Friday. Bailey speaks Saturday. The BOE has cautioned that “Underlying UK GDP growth appears to have remained weak, and the labor market has continued to loosen, leading to clearer signs that a margin of slack has opened up over time.”

Switzerland reports June CPI data Thursday. Headline is expected to remain steady at -0.1% y/y while core is expected to pick up a tick to 0.6% y/y. At the last meeting June 19, the SNB cut the policy rate 25 bp to 0% due to easing inflationary pressures. A negative policy rate cannot be ruled out as long as inflation undershoots the SNB’s forecast. The SNB forecasts headline CPI inflation of 0% in Q2 before gradually picking up and stabilizing at 0.7% by Q2 2027. The swaps market is pricing in another 25 bp of easing over the next 12 months that would see the policy rate bottom at -0.25%. Regardless, CHF safe haven status outweighs the drag from the likelihood of negative rates.

ASIA

Japan highlight will be Q2 Tankan report Tuesday. Large manufacturing business conditions index is expected at 10 vs. 12 in Q1, while large manufacturing outlook is expected at 9 vs. 12 in Q1. Elsewhere, large non-manufacturing business conditions index is expected at 34 vs. 35 in Q1, while large manufacturing outlook is expected at 29 vs. 28 in Q1. Finally, all industry capex is expected at 10.0% vs. 3.1% in Q1.

We expect the economy to continue slowing, which should keep the Bank of Japan very cautious. The swaps market continues to price in only 25 bp of total tightening over the next 12 months. Governor Ueda speaks Tuesday. Board member Takata speaks Thursday.