Daily Analysis 03/07/2025

• GBP/USD Price: The GBP/USD pair holds its upward momentum for the fourth straight session, trading above 1.3700 during Thursday’s European hours. The rally is supported by overall USD softness and resilient UK sentiment.
• UK Political Drama: Finance Minister Rachel Reeves appeared upset after PM Keir Starmer declined to guarantee her position until the next election. Despite later reassurances from Starmer’s office affirming Reeves' full support, markets shrugged off the political noise, focusing instead on economic fundamentals.
• BoE Signals: BoE Governor Andrew Bailey told the Lords Economic Affairs Committee on Tuesday that they are starting to observe labor market softening. Additionally, BoE Deputy Governor Dave Ramsden said that if evidence becomes stronger that inflation will undershoot the target, they can speed up rate cuts.
• BoE's Taylor: BoE Policymaker Alan Taylor warned against aggressive rate cuts, stressing risks to a soft landing and expressing confidence that energy price shocks will subside by 2026.
• US Data: US ADP employment data for June showed a surprise drop of 33K jobs versus expectations for a 95K gain, contrasting stronger JOLTs and Challenger data from May. This fueled further USD weakness, supporting GBP/USD upside.

Closing statement: GBP/USD remains supported above 1.3700, bolstered by a softer US dollar and cautious BoE tone. Near-term moves will hinge on further US jobs data and evolving UK economic signals, with political tensions seen as secondary drivers for now.

• XAU/USD Price: Gold (XAU/USD) faces selling pressure in Thursday’s Asian session, pausing its three-day rebound from a one-month low. The metal struggles to sustain upside momentum as traders reassess broader risk sentiment and dollar dynamics.
• Japan's Akazawa: Japan trade negotiator, Ryosei Akazawa said he would not sacrifice national interests by rushing into a trade deal. Japan and US are continuing vigorous trade negotiations.
• Canada's Hillman: Canada's ambassador in Washington and chief negotiator Kirsten Hillman in the talks with the US said Canada was still aiming to get all of Trump’s tariffs lifted as part of a deal with the White House later this month.
• US-Vietnam Trade: President Donald Trump announced on Wednesday that the United States has struck a trade agreement with Vietnam. The US will impose a lower, 20% tariff on goods imported from the Southeast Asian nation, and the deal will give the US tariff-free access to Vietnam’s markets.
• Fed Rate Cut: Markets are pricing in a nearly 25% chance of a Fed rate cut in July, with a September cut seen as almost certain. Additionally, traders expect two cuts by year-end. Lower US rates typically support non-yielding assets like gold, but near-term moves remain cautious.

Closing statement: Gold price remains under modest pressure after its brief recovery, weighed by stronger risk appetite amid global trade deal headlines and a wait-and-see approach to Fed policy signals. Near-term direction hinges on upcoming US data and clarity on rate cut timing.

• Crude Oil Price: West Texas Intermediate (WTI) trades around $66.00 during Thursday’s early European session. The price remains pressured after a surprise inventory build in the US undermined recent gains.
• US Inventories: The EIA weekly report showed US crude stockpiles rising by 3.845 million barrels for the week ending June 27, contrasting expectations for a draw. The unexpected increase points to weaker domestic demand and weighs on overall market sentiment.
• Chinese Economic Data: On the demand front, there was a slight boost from China, as the Caixin Manufacturing PMI climbed to 50.4 in June — the first expansion since March. While supportive, it failed to fully offset bearish inventory signals.
• Iran News: qIran’s Supreme National Security Council will now decide on future IAEA inspections, reflecting deeper tensions with Western countries and Israel. Although this introduces longer-term supply risk, immediate price impact was muted.
• Upcoming Data: Traders await the US June Nonfarm Payrolls (NFP) report on Thursday, which could influence expectations for Fed rate cuts this year — an important driver for broader commodity and energy markets.

Closing statement: WTI remains pressured near $66 after a surprise US inventory build, with minor support from positive Chinese data. Focus now shifts to upcoming US labor market data to gauge possible Fed policy shifts that could impact oil demand outlook.

• DAX Price: On Wednesday, July 2, the DAX rose 0.46% to close at 23,800, supported by solid gains in the Technology, Chemicals, and Food & Beverages sectors. Optimism over trade negotiations and strong sector performance helped lift investor sentiment.
• EU-US Trade: EU trade commissioner Maros Sefcovic meets with US Trade Representative Jamieson Greer today for a final push before the July 8 deadline to avoid 50% "reciprocal" tariffs. This meeting could be decisive for trade-sensitive German stocks, especially in the auto and manufacturing sectors.
• EU Labor Market: The European Commission forecasts continued job losses in France and Germany (-0.2% y/y) for 2025, contrasting with strong expected employment growth in Spain (+2.1% y/y). This divergence may influence economic sentiment and domestic consumption trends.
• Powell’s Future: Bloomberg reported that it’s uncertain whether Jerome Powell will depart after his current term as Fed Chair ends, though he could remain on the Board. This adds an extra layer of ambiguity to global monetary policy expectations, which can affect European equities indirectly.
• US Holiday: US markets closed early on Wednesday and will remain shut on Thursday for a holiday, potentially leading to reduced trading volumes and lower volatility for global equities, including the DAX, over the short term.

Closing statement: The DAX benefited from strong sector gains and positive risk sentiment, while EU-US trade talks loom as a major catalyst. With mixed labor market signals and external policy uncertainty (notably regarding the Fed), investors may remain cautious heading into next week’s trade resolution deadline.