US Dollar Index (DXY) Plummets Following Labour Market Data

Forex

Economic

Summary:

The US Dollar Index (DXY) fell by approximately 1.4% on Friday after the release of disappointing US labour market figures.

The US Dollar Index (DXY) fell by approximately 1.4% on Friday after the release of disappointing US labour market figures. According to Forex Factory:

→ The unemployment rate rose from 4.1% to 4.2%;

→ The Nonfarm Employment Change figure came in at 73K, well below the forecast of 103K. This is the lowest level of job creation in the nonfarm sector in 2025 and is roughly half the previous month’s reading (prior to revisions).

→ Furthermore, revisions for May and June were significantly more severe than usual. The May figure was revised downward by 125,000 — from +144,000 to +19,000. Similarly, the June figure was revised down by 133,000 — from +147,000 to +14,000.

These results point to a weakening labour market, which increases the likelihood of a rate cut aimed at supporting economic growth. In turn, expectations of a Fed rate cut are acting as a bearish driver for the US dollar.

US Dollar Index (DXY) Plummets Following Labour Market Data_1

Technical Analysis of the DXY Chart

Six days ago, we highlighted two U-shaped trajectories (A and B), which together formed a bullish сup and рandle pattern on the US Dollar Index chart.Following this, price action generated a notable upward impulse (as indicated by the arrow), breaking through the upper boundary of the pattern.However, Friday’s news triggered the following developments:

→ A new top (4) was formed on the chart, accompanied by a false bullish breakout above the psychological level of 100.00;

→ The price declined to the 98.80 area. The downward move slowed here, as this zone had previously seen strong bullish activity during the breakout from the pattern’s upper boundary — likely explaining why the market is finding support here on Monday morning.

Overall, the technical picture has shifted towards a bearish outlook. Friday’s peak continues the summer sequence of lower highs and lows: 1 → 2 → bottom of pattern (A) → 4. This structure is part of a broader downtrend that has defined the market in 2025.

Should bearish sentiment persist, fuelled by Friday’s data, we can assume a further decline in the US Dollar Index towards the median line of the descending channel (shown in red), which has been drawn through the aforementioned price extremes.

Source: FXOpen

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Economic

Malaysia and U.S. Strike Investment-Backed Trade Deal to Avert Higher Tariffs

Malaysia has agreed to make substantial economic commitments to the United States totaling up to $150 billion over five years to secure more favorable trade terms under a new bilateral arrangement. The deal was confirmed Monday by Malaysian Trade Minister Tengku Zafrul Aziz during a parliamentary briefing, outlining a multifaceted strategy to reduce U.S. tariff exposure while deepening cross-border economic ties.

Under the agreement, Malaysia will increase its purchases of American technology and energy assets, specifically targeting semiconductor, aerospace, and data center industries. The move comes after weeks of negotiations with Washington, which had initially threatened a 25 percent tariff on Malaysian goods but ultimately settled on a reduced rate of 19 percent, set to take effect on August 8.

Key Pillars of the Deal: LNG Purchases and Tech Investments

A central component of the agreement involves Malaysia’s state energy firm, Petroliam Nasional Berhad (Petronas), committing to buy $3.4 billion worth of U.S.-sourced liquefied natural gas annually. In parallel, Malaysian entities will spend a cumulative $150 billion on American-made industrial and technological equipment, supporting U.S. multinationals while bolstering Malaysia’s domestic capacity in high-value sectors.

In a bid to further ease trade tensions, Malaysia will also invest $70 billion in the U.S. economy over the next five years. These cross-border flows are designed to reduce Washington’s $24.8 billion goods trade deficit with Malaysia, a figure that has been politically sensitive amid ongoing U.S. tariff campaigns under President Donald Trump’s administration.

Market Access and Regulatory Concessions from Malaysia

As part of the broader deal, Malaysia has agreed to significant concessions on trade access. These include lowering or abolishing tariffs on 98.4 percent of U.S. imports, relaxing certain non-tariff barriers, and eliminating a requirement that had previously compelled U.S. digital firms such as social media and cloud providers to allocate a portion of their Malaysian revenue to a state-managed fund.

These adjustments are expected to ease frictions in sectors such as pharmaceuticals and semiconductors, where Malaysia had secured tariff exemptions last week. However, despite this progress, Tengku Zafrul warned that further risks remain. Specifically, Malaysian semiconductor exports could still face additional levies under U.S. national security regulations, adding a layer of unpredictability to the industry’s outlook.

Strategic Objectives and Risk Management

The revised trade terms highlight Malaysia’s pragmatic approach to preserving U.S. market access while positioning itself as a regional hub for advanced manufacturing and data infrastructure. The aggressive commitment to U.S. technology procurement reflects both economic necessity and a diplomatic balancing act amid shifting geopolitical alignments and global trade realignments.

While the financial scale of Malaysia’s commitment underscores the country’s willingness to recalibrate its trade relationship, the semiconductor warning serves as a reminder that policy risks especially in strategic sectors are unlikely to disappear entirely. With Washington continuing to enforce national security-based trade restrictions, Malaysia’s reliance on semiconductor exports may remain a vulnerability.

Malaysia’s latest trade pact with the United States reflects a calculated effort to mitigate protectionist pressures while accelerating domestic industrial upgrading. By leveraging high-profile investments and market liberalization, Malaysia has managed to secure key exemptions and reduced tariff exposure, though future risks remain in sensitive sectors such as semiconductors. The evolving framework offers immediate relief but will require continued diplomatic vigilance and policy agility in the years ahead.

Source: Reuters

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Economic

Germany Seeks Steel Quota Deal as Transatlantic Trade Talks Continue

German Finance Minister Lars Klingbeil has announced plans to press the United States for a quota-based system on European steel exports during his meeting with US Treasury Secretary Scott Bessent in Washington. Klingbeil’s intervention reflects mounting pressure from Berlin to secure more favorable terms for Germany’s critical steel sector within the broader EU-US trade framework.

Speaking to Deutschlandfunk radio ahead of the meeting, Klingbeil stressed that steel remains a "particularly important issue for the German economy and jobs," citing ongoing uncertainty surrounding tariff rates and export volumes. He emphasized his intent to gauge the level of US flexibility and explore viable compromises, even though formal negotiations remain under the EU’s jurisdiction.

Steel Industry at Center of Ongoing Trade Dispute

While a trade agreement was struck in July between the EU and the administration of President Donald Trump, several sectors including steel and aluminum were left unresolved. Although most European exports now face a general tariff of 15 percent, steel and aluminum are subject to far steeper levies of up to 50 percent. Germany, Europe’s largest steel exporter, is particularly exposed to these conditions.

Chancellor Friedrich Merz previously stated that the EU would engage in sector-specific talks with the US, with steel quotas emerging as a preferred strategy. Such quotas would allow a fixed volume of steel to be exported tariff-free or at reduced rates, providing predictable access to the US market and shielding German firms from excessive cost burdens.

Policy Priorities and Political Pressure in Berlin

Klingbeil’s advocacy for quotas highlights Berlin’s growing concern over the potential domestic fallout of continued trade frictions. Germany’s steel industry supports tens of thousands of jobs and underpins several downstream manufacturing sectors. Without a quota system, firms face higher export costs, reduced competitiveness, and the risk of production cuts or job losses.

Klingbeil also called for expedited clarification of other open trade issues, particularly those tied to energy cooperation and EU investment commitments. Uncertainty in these areas continues to delay broader economic planning and transatlantic regulatory alignment.

As transatlantic trade negotiations enter a sensitive phase, Germany is taking a more active role in shaping outcomes that affect its core industrial base. By advocating for steel export quotas, Finance Minister Klingbeil is seeking to insulate German manufacturers from the volatility of high tariffs while helping the EU close one of the last remaining chapters of the current US-EU trade agreement. Whether Washington proves receptive to such a compromise may determine the pace and scope of future economic cooperation between the two powers.

Source: Reuters

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Blue River

Economic

Forex

The EURUSD pair continues to rise on the back of deteriorating US labour data and expectations of a Federal Reserve rate cut. However, EURUSD technical analysis suggests a high probability of a downward correction towards 1.1375 in line with a Head and Shoulders pattern.

The EURUSD pair continues its upward attempt as weak US macroeconomic data weighs on the US dollar. The price currently stands at 1.1574. Discover more in our analysis for 4 August 2025.

EURUSD forecast: key trading points

●In July, the US economy added just 73 thousand jobs

●The ISM Manufacturing Index fell to 48 points, staying below 50 for the fifth consecutive month

●Markets now price in a near-certain Fed rate cut in September

●EURUSD forecast for 4 August 2025: 1.1415

Fundamental analysis

The EURUSD rate is slightly rising, remaining below the 1.1590 resistance level. The US dollar continues to lose ground amid disappointing labour market data.

In July, the US economy added only 73 thousand jobs, far below the expected 110 thousand. The June figure was revised down to 14 thousand from 147 thousand, with May’s gain down to 19 thousand from 144 thousand, highlighting a worsening hiring trend.

The US ISM Manufacturing PMI dropped to 48 from 49 points, contrary to forecasts for a rise to 49.5. The figure remains below the 50 threshold for the fifth consecutive month, signalling continued contraction in activity.

Markets now almost fully price in a Federal Reserve rate cut in September. Tensions escalated after President Donald Trump dismissed Bureau of Labor Statistics Commissioner Erica McEntarfer, accusing her of manipulating employment data.

EURUSD technical analysis

The EURUSD rate maintains its upward momentum after breaking out of the consolidation range, signalling a revival in buying interest. However, the price remains below the key 1.1590 resistance level, which limits the short-term upside potential.

Today’s EURUSD forecast suggests a drop towards 1.1375 as part of a Head and Shoulders pattern formation. The Stochastic Oscillator confirms the likelihood of a correction, with signal lines turning down from overbought territory, indicating weakening bullish momentum.

A breakout below the ascending channel’s lower boundary, along with consolidation below 1.1525, would confirm the bearish scenario.

Source: RoboForex

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Economic

Bond

Beijing Ends Longstanding Bond Tax Exemption, Stirring Debt Market Reaction

In a significant policy shift, China’s Ministry of Finance announced plans to reintroduce a value-added tax (VAT) on interest income earned from newly issued bonds by central and local governments as well as financial institutions, starting August 8. Bonds issued prior to this date, including reopenings of existing tranches, will retain their tax-exempt status. This development effectively terminates a three-decade policy of preferential tax treatment in the bond market and has triggered immediate adjustments in investor behavior.

Since the 1990s, China had exempted bond interest income from VAT to encourage sovereign debt purchases and facilitate public fund-raising. The exemption was retained even during the broader VAT system reform of 2016. Now, officials argue that the exemption has fulfilled its historical purpose. With China’s bond market now the second largest globally, the Ministry believes a more normalized tax structure is appropriate.

Short-Term Market Impact and Bond Pricing Dynamics

Markets responded promptly. Investors rushed to acquire older, tax-exempt bonds, pushing yields lower on those instruments. Huatai Securities analysts estimate that the spread between existing and new bonds could widen by five to ten basis points, reflecting the new tax burden.

On Friday, yields on China’s 30-year bonds dipped in response to the announcement, stabilizing Monday at 1.94 percent. The 10-year yield held at 1.69 percent after slipping slightly in the previous session. Analysts suggest the resumption of tax collection will increase borrowing costs across the public and financial sectors at a time when the Chinese economy is still struggling with weak domestic demand and fragile recovery momentum.

With the general VAT rate at 6 percent, the new tax introduces a meaningful cost for institutional bondholders, particularly banks and long-term investors who dominate the sovereign debt space. According to data as of end-June, nearly 70 percent of China’s total outstanding bond stock is comprised of government and financial institution notes highlighting the broad reach of the tax.

Revenue Generation vs. Funding Costs: Balancing Fiscal Strategy

From Beijing’s perspective, reintroducing this tax provides a new revenue stream amid efforts to shore up government finances without resorting to headline-grabbing spending cuts. Yet, the policy may prove counterproductive if higher funding costs reduce the appetite for debt issuance or hinder the government's ability to stimulate growth through infrastructure and social programs.

Economist Serena Zhou of Mizuho Securities notes that the new tax will likely cap further declines in bond yields and reduce the enthusiasm of banks for government bond purchases. This could lead to a reallocation of funds toward instruments not subject to the same tax such as corporate bonds or negotiable certificates of deposit (NCDs) thus altering the composition of institutional portfolios.

Equity Market and Sectoral Implications

Bank stocks, which tend to benefit from rising yields and reduced reliance on low-return government securities, rallied on Friday after the tax announcement. The shift in investor preference away from tax-penalized sovereign bonds is expected to provide relative support to banking and financial sectors in the near term.

Brokerages like Huachuang Securities also anticipate increased interest in corporate bonds and NCDs as these become more attractive in comparison. However, this rebalancing may introduce additional volatility to non-sovereign segments of the fixed-income market, particularly if investor risk appetite remains subdued.

China’s decision to tax bond interest income marks a turning point in the evolution of its financial markets, ending a decades-long incentive designed to promote sovereign borrowing. While the policy shift is framed as a necessary step toward fiscal modernization and structural alignment, it introduces short-term frictions that may affect borrowing costs, investment behavior, and monetary policy transmission. Investors are now reassessing their fixed-income strategies as the landscape adjusts to a new equilibrium where tax differentials and not just duration or credit quality shape bond valuations.

Source: Bloomberg

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Economic

Commodity

Gold Maintains Gains After Labor Market Weakness and Tariff Escalation

Gold prices stabilized on Monday, trading near $3,360 per ounce, after posting a 2.2 percent gain in the previous session the strongest daily rise in two months. This momentum reflects investor concerns over the deteriorating US labor market and the renewed risk of trade disruptions under President Trump’s intensified tariff agenda.

July’s payroll data, showing only 73,000 new jobs, fell sharply below expectations. Revisions to May and June erased nearly 260,000 positions, marking one of the steepest labor market downward adjustments in recent years. These figures have fueled expectations that the Federal Reserve will cut interest rates in September, with traders now pricing in aggressive easing through year-end.

Rate Cut Expectations and Policy Uncertainty Drive Market Sentiment

The weak job numbers coincided with President Trump’s dismissal of the Bureau of Labor Statistics commissioner, a decision that has raised questions about the credibility and independence of US economic institutions. Combined with the latest wave of tariffs reportedly among the most severe since the 1930s investors are growing increasingly cautious about the stability of the policy environment.

In this context, gold continues to benefit from its traditional role as a hedge against both inflation and political risk. With US equities declining and the Bloomberg Dollar Spot Index down 0.1 percent, the relative appeal of bullion as a non-yielding, globally recognized store of value remains elevated.

Geopolitical and Monetary Tailwinds Support Further Upside

Gold’s performance in 2025 reflects more than just short-term reactions to data or headlines. The precious metal has already climbed over 25 percent year-to-date, supported by persistent central bank purchases, elevated geopolitical tensions including the ongoing Russia-Ukraine conflict and speculative inflows driven by recession fears and institutional distrust.

With markets expecting the Fed to lower rates amid softening growth and weaker labor momentum, gold is positioned to remain in demand. Lower yields reduce the opportunity cost of holding gold, making it more attractive in both institutional and retail portfolios.

Market Outlook and Broader Commodities Performance

At 1:15 p.m. in Singapore, bullion was trading at $3,359.81 per ounce, down just 0.1 percent from earlier highs. Silver edged up 0.2 percent, while palladium and platinum posted slight declines, reflecting the broader commodity market’s cautious mood. Equities, meanwhile, continued to edge lower, underscoring the risk-off sentiment dominating global markets.

Gold’s ability to hold recent gains in the face of volatile macroeconomic developments reflects a deeper, sustained shift in investor strategy. As central bank policy becomes more accommodative and political risk undermines confidence in economic reporting and governance, bullion stands out as a durable asset. Unless labor data strengthens unexpectedly or tariff tensions de-escalate swiftly, gold’s position near record highs is likely to persist.

Source: Bloomberg

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Economic

VinFast Commits to India as Strategic Gateway for Asian and Global Growth

Vietnamese automaker VinFast broke ground Monday on a $500 million electric vehicle (EV) factory in Thoothukudi, Tamil Nadu, marking its most ambitious international investment to date. The move is part of a $2 billion plan to build a foothold in India and strengthen its regional presence amid underwhelming performance in Western markets.

The new plant is designed to produce 50,000 EVs annually in its initial phase, with future capacity expansion up to 150,000 units. VinFast aims to turn the factory into an export hub serving South Asia, the Middle East, and Africa. Located near a major port in one of India’s most industrialized states, the site was chosen after a competitive review of 15 potential locations across six Indian states.

Tamil Nadu’s Industries Minister T.R.B. Raaja hailed the investment as a catalyst for the development of a new industrial cluster in southern India, noting that the state’s robust infrastructure and skilled workforce made it an ideal destination.

Strategic Pivot Toward Asian Markets After Western Challenges

VinFast’s entry into India signals a deliberate shift in corporate strategy following limited traction in the US and Europe. Although the company tripled its vehicle sales to nearly 97,000 in 2024, only a fraction of that volume came from international markets. In response, VinFast has intensified its focus on Asia, launching a $200 million facility in Indonesia and initiating market expansions in Thailand and the Philippines.

India represents a particularly attractive opportunity due to its fast-growing automotive market, favorable EV policies, and still-fragmented competition. As the third-largest car market globally by volume, India is seen as essential for any automaker pursuing regional dominance.

Analyst Ishan Raghav of autoX described India as a market that “no automaker in the world can ignore,” emphasizing its rising middle class and government-driven push for EV adoption.

India’s EV Landscape Presents Opportunities and Obstacles

The Indian EV market remains in its early stages but is expanding rapidly. While over 86 percent of EVs sold in 2024 were two- and three-wheelers, sales of passenger EVs rose sharply to more than 110,000 units from just 1,841 in 2019. Government targets aim for EVs to make up one-third of all passenger vehicle sales by 2030, a shift supported by tax breaks and incentives for domestic manufacturing.

VinFast plans to debut in India with its VF6 and VF7 electric SUV models, designed specifically to meet the expectations of Indian consumers. The company also intends to establish 32 dealerships across 27 cities and collaborate with local firms to develop service centers and charging infrastructure.

However, competition is fierce. Tata Motors, which holds around 50 percent of India’s EV market, was an early mover with its electric Nexon SUV. Other strong incumbents include Mahindra, Hyundai, MG Motors, and global luxury brands, all of which cater to different price tiers. VinFast’s challenge will be to carve out a niche that balances affordability, design appeal, and battery reliability for a value-conscious buyer base.

VinFast Seeks to Fill the Gap Left by Chinese EV Giants

VinFast’s expansion in India may be aided by the geopolitical headwinds facing Chinese automakers. Following military tensions between India and China in 2020, Chinese EV giants such as BYD faced restrictions on setting up direct manufacturing operations. Although some have formed joint ventures, the market remains difficult for Chinese brands to penetrate.

VinFast, by contrast, enters the market without political baggage and stands to benefit from India’s aggressive localization incentives. Lower land prices, tax benefits, and import duties that discourage foreign-made vehicles further support VinFast’s decision to manufacture domestically.

Tesla’s recent entry into India with the Model Y, priced at nearly $80,000, underscores the difficulty of relying on imported EVs in a price-sensitive market. In contrast, VinFast intends to produce key components like battery packs and powertrains locally to keep costs competitive.

Winning Over Indian Consumers Requires Long-Term Commitment

Despite the opportunities, building brand credibility in India will be a gradual process. VinFast must address the unique needs of Indian consumers, who often purchase EVs as secondary vehicles for city use due to limited intercity charging infrastructure. The company’s plans to recycle batteries and localize production will help contain costs, but trust in aftersales service, battery durability, and resale value will be critical factors in long-term adoption.

Vivek Gulia of JMK Research noted that success hinges on pricing and consumer trust. "If VinFast can deliver on both, they can actually do really good," he said, drawing parallels to Hyundai’s multi-decade journey in the Indian market, which was aided by celebrity endorsements and product consistency.

VinFast’s $500 million investment in Tamil Nadu marks more than a production milestone it is a strategic play to penetrate one of the world’s most promising but complex EV markets. With its clear localization strategy, absence of geopolitical baggage, and focus on regional exports, VinFast positions itself as a credible challenger in Asia’s rapidly evolving electric vehicle sector. Success in India may well determine whether the company can turn its domestic growth into a durable international presence.