Currency Market Update & Forecast – 4 July 2025

Trading is subdued with U.S. markets closed for Independence Day, but attention remains on next week’s key tariff deadline that could shape the dollar’s path. The euro is steady near 1.1760 after soft German factory orders and cautious ECB commentary. GBP/USD holds around 1.3640 following a strong U.S. jobs report that pushed back Fed rate-cut expectations. Commodity currencies are weaker on risk aversion, while emerging market FX is mixed in thin holiday trading.

Dollar Outlook: Tariff Deadline in Focus

The U.S. dollar is trading slightly softer today ahead of the Independence Day holiday, with markets cautious before next week’s key July 9 tariff deadline.

UBS Global Wealth Management analysts noted in a research note that “targeted tariffs would likely support the dollar,” as imposing tariffs selectively on underperforming trade partners historically strengthens the greenback.

“Targeting individual countries in a trade war tends to strengthen the dollar, while broad-based tariffs generally weaken it.” – UBS GWM

If the U.S. chooses to extend the 90-day tariff pause, the impact on the dollar is less clear. UBS warns that postponing the tariffs again might boost risk-sensitive currencies like AUD, NZD and EM FX on relief, while also encouraging markets to price in further Fed rate cuts later this year.

Watch for policy headlines into next week’s tariff deadline.

Learn more about how tariffs impact currency markets

Euro to Dollar Forecast: “EUR/USD Could Retest 1.1830”

EUR/USD is trading around 1.1760 this afternoon after rebounding from session lows near 1.1720.

The pair came under early pressure following weaker-than-expected German factory orders (-1.4% MoM in May) and subdued Eurozone PPI (+0.3% YoY), reinforcing expectations for a dovish ECB stance in coming months.

ECB President Christine Lagarde’s speech today offered limited new guidance but highlighted the ongoing disinflation risk.

Despite the pullback, some analysts remain bullish in the medium term. UOB noted:

“Despite the pullback, there is still a chance for EUR to retest the 1.1830 level before a more sustained correction.”

Resistance: 1.1830. Support: 1.1720.

See the latest ECB monetary policy news

Pound to Dollar Forecast: “GBP/USD Faces Key Support Levels”

GBP/USD is hovering near 1.3640, down 0.16% intraday, following choppy trading after the strong U.S. jobs report.

Thursday’s Non-Farm Payrolls surprised to the upside with 147k new jobs, while unemployment dropped to 4.1%, dashing speculation about a near-term Fed cut.

Scotiabank analysts warned that “the damage has been done” for GBP/USD after it slipped below 1.3600 support on the data, highlighting the 50-day moving average as a critical technical level.

Markets are also watching for policy clues from BoE’s Taylor speech later today as the Bank of England grapples with sticky UK inflation.

Resistance: 1.3675. Support: 1.3600.

Read more: Bank of England speeches and policy updates

Dollar Index (DXY) Holds Gains Despite Holiday Calm

The Dollar Index (DXY) is trading at 97.03, down 0.15% on the day but still elevated after Thursday’s NFP surprise.

Fed Chair Jerome Powell previously suggested tariffs had lifted inflation forecasts, helping justify higher rates. The July 9 tariff decision could therefore directly influence U.S. rate cut expectations.

Analysts see a tactical bid for the dollar if targeted tariffs are announced, but a broader reprieve could weigh on the greenback if markets start pricing in more Fed cuts.

Resistance: 97.50. Support: 96.80.

Check Federal Reserve policy statements

Commodity FX: Risk Appetite Under Pressure

Commodity currencies are weaker as risk appetite remains fragile ahead of the tariff decision:

• AUD/USD: 0.6554 (-0.34%)
• NZD/USD: 0.6060 (-0.30%)

UBS suggests that if the U.S. extends the tariff pause, these risk-sensitive currencies could see short-term relief. However, a longer pause might also encourage markets to price in more Fed cuts, making the USD outlook mixed.

AUD/USD support: 0.6520. Resistance: 0.6600.

Emerging Market FX: Mixed Moves as ZAR Slides

Emerging market currencies showed mixed performance on Thursday in thin holiday trading:

• USD/MXN: steady at 18.64
• USD/BRL: flat at 5.41
• USD/ZAR: +0.71% at 17.63

USD/ZAR surged as local sentiment weakened, while other EM pairs traded narrowly.

Markets are expected to react strongly next week to any U.S. tariff decision, with EM FX particularly sensitive to risk appetite swings and Fed rate expectations.

Forex Trading Themes Today

• U.S. tariff deadline (July 9) in focus: targeted vs broad-based risk.
• ECB cautious amid weak Eurozone data.
• Strong U.S. jobs report shifts Fed rate-cut bets.
• BoE’s Taylor speech awaited for GBP direction.
• Holiday-thinned liquidity limits big moves today.