Ahead Today
G3: Dallas Fed manufacturing activity, Germany CPI
Asia: China manufacturing PMI, Thailand trade and current account
Market Highlights
The US dollar remains under cyclical downward pressure, driven by ongoing uncertainties surrounding US fiscal and trade policies. One key driver that could further hurt the US dollar is the potential surge in fiscal debt stemming from President Trump’s one big beautiful bill. According to the Congressional Budget Office (CBO), Trump’s tax and spending measure could add nearly $3.3tn to US fiscal deficits over the next 10 years. Republicans are edging closer to passing Trump’s signature tax bill, having narrowly cleared a procedural vote in the Senate on Saturday night. The procedural vote was narrowly passed with a 51-49 vote on Saturday night, moving the bill to a final Senate vote. Trump has publicly criticized 2 Republican senators who opposed the measure during the procedural vote. A final Senate vote on the bill could take place on Monday. If approved, the bill will proceed to the House for a vote on the Senate version, before reaching Trump’s desk. Trump is urging lawmakers to pass the bill before the Republican’s self-imposed deadline of 4 July.
Regional FX
Asian currencies have gained against the US dollar following the Iran-Israel ceasefire and amid growing market concerns about Fed’s independence and the US fiscal outlook. Notably, the TWD showed unexpected resilience despite the recent Middle East conflict, and it made further gains against the US dollar last week, rising by 1.3%. There appears to be some support for USDTWD at the 29.00-level for now, though, but further TWD gains could exacerbate foreign exchange losses for life insurers.
The Thai baht has also gained in the wake of the Israel-Iran ceasefire, but it is vulnerable to an escalating domestic political crisis. Thousands of protesters have taken to the streets in Bangkok, demanding the resignation of Thai Prime Minister Paetongtarn following a leaked phone call with former Cambodian Prime Minister Hun Sen. In the call, she criticized the military for escalating a border dispute with Cambodia. The diplomatic scandal has already prompted a major coalition partner, Bhumjaithai – holding 69 parliamentary seats - to exit the ruling coalition. This leaves the government with only a slim majority of 255 seats. Additionally, 36 senators have petitioned the Constitutional Court to suspend Thai PM Paetongtarn, and the court will decide on 1 July whether to accept the petition. So far, markets have not priced in significant increase in country risk premium. But if protests escalate to levels seen during the 2013-2014 political crisis – which culminated in a military coup in May 2014 - there could be serious implications for tourism, the passage of the FY26 budget bill, and economic growth, all of which would weigh on the outlook for the Thai baht.
