Synopsis:

MUFG flags next week’s June NFP as pivotal for shaping expectations of a July Fed rate cut, which markets currently see as a low-probability event. A soft print could sharply raise cut expectations, further pressuring the USD, already trading at its weakest since March 2022.

Key Points:

• NFP as Catalyst:
  A weak jobs report next Thursday would likely drive a sharp repricing in July cut odds, which currently sit just below 20%.

• September Fully Priced:
  Markets have now fully priced in a rate cut in September, aligning with recent soft inflation prints and weakening growth data.

• Oil and Tariffs in the Mix:
  A further decline in crude oil prices could mitigate tariff-related inflation risks. There’s also potential for Trump to walk back tariff rhetoric, which would ease macro headwinds and bolster July cut risks.

• USD Under Broad Pressure:
  The DXY closed at its lowest level since March 2022, signaling persistent downside as the Fed outlook softens and macro conditions evolve.

Conclusion:

MUFG highlights that a soft NFP print could be decisive in pulling forward Fed rate cut expectations to July, accelerating USD downside momentum. For now, market focus remains tightly centered on upcoming US labor data.