The USD’s drop has slowed down as new US data came out better than expected. This includes positive results from ISM manufacturing, prices paid, and JOLTS job openings. The Dollar Index is currently around 96.90. At a forum hosted by the European Central Bank, Fed Chair Powell took a careful approach. He is looking at how tariffs affect inflation before making any decisions about interest rates. He mentioned that if tariffs weren’t a concern, a rate cut might have already happened. However, he did not commit to when future rate changes might occur.

One Big Beautiful Bill Act

The Senate passed the One Big Beautiful Bill Act with a 51-50 vote. The Congressional Budget Office updated its debt forecast for the bill, now predicting an increase of $3.3 trillion to the national debt over the next ten years. This is higher than the earlier estimate of $2.8 trillion. This rise in debt projections raises concerns about US debt trends. Mild bearish momentum continues, with potential support at 96.40 and 96.10. Resistance levels are at 97.50/60 and 98.20 (the 21-day moving average). The earlier part clearly shows that the Dollar’s recent decline is losing momentum due to better-than-expected US economic data. Manufacturing activity and job openings surprised positively, giving the market a bit of resilience. While the Dollar Index remains lower than it was weeks ago, it now sits around 96.90, close to previous support levels. Powell, discussing rate expectations, did not commit to a timeline for rate cuts. However, he made one thing clear: if it wasn’t for uncertainty about trade tariffs impacting inflation, a rate cut might have already taken place. This suggests that the Fed wants to ease rates but is closely monitoring supply-side shocks. One bad inflation report could lock that door.

Market Implications and Strategy

The passage of the One Big Beautiful Bill Act and the new debt forecast from the CBO raise doubts about long-term fiscal health. An increase of $3.3 trillion in debt over the next decade is a significant revision from the earlier estimate of $2.8 trillion. This adds pressure on yields and raises the risk for long-duration investors. What does this mean for those watching derivative markets? Short-dated contracts will likely respond to recent inflation data and any signals regarding tariffs. The market is hesitant to price in aggressive easing, indicating that downside protection, which was once expensive, is now more affordable. If the data wobbles, particularly core measures, pricing will change quickly. It’s important to stay ahead. Keep an eye on support around 96.40 and 96.10, where buyers have been active. However, the potential for a rally seems limited unless we break through 97.50/60 and remain above the 21-day moving average near 98.20. Until then, upward moves may face selling pressure from those adjusting previously defensive positions. When it comes to strategy, being flexible seems smarter than trying to make long-term predictions. Volatility has been low, but that can shift quickly with new data or Fed headlines. The market is driven by data, and with Powell indicating he is taking it day by day, we should be ready to do the same. Create your live VT Markets account and start trading now.

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