The U.S. dollar edged higher on Thursday following a new trade agreement between the United States and Vietnam, boosting investor confidence in the possibility of additional deals before U.S. tariffs are implemented on July 9.
Market participants are also closely watching upcoming payroll data for clues about the Federal Reserve's next move, News.Az reports, citing Reuters.
Sterling was steady after a nearly 1% drop in the previous trading session, as UK Prime Minister Keir Starmer's office backed under-fire Finance Minister Rachel Reeves, hoping to allay investor worries about Britain's finances.
British government bonds also tumbled on Wednesday, as a tearful appearance by Reeves in parliament a day after the government backed down on welfare reforms stoked fiscal concern.
The pound last fetched $1.3628, while the euro eased a touch to $1.1788, still near the September 2021 top it hit earlier this week. The yen was a tad weaker at 143.84 per dollar.
Currency strategist Carol Kong at Commonwealth Bank of Australia said market participants are worried Reeves could be replaced with someone less committed to the government's self-imposed fiscal rules and more willing to borrow.
"The pound can remain under downward pressure unless the U.K. government takes measures to restore market confidence in U.K. finances."
The U.S. dollar index, which measures the greenback against six other currencies, was 0.11% higher at 96.862, remaining close to the 3-1/2-year lows it has been rooted to this week. The index is on course for a 0.5% drop for the week.
Investor attention will turn to the U.S. Labor Department's comprehensive employment report for June, due for release on Thursday ahead of the July 4 holiday, after data showed private payrolls fell for the first time in more than two years in June.
The private report, released by Automatic Data Processing on Wednesday, pushed traders to shift expectations of when the Federal Reserve will lower interest rates. Traders are pricing in a 25% chance of a cut in July versus 20% a day earlier, the CME FedWatch tool showed.
"The ADP print has certainly raised the stakes for nonfarm payrolls," said Charu Chanana, chief investment strategist at Saxo in Singapore.
"What could earlier have been interpreted as 'bad news is good news' (softer data pushing the Fed to cut) may now simply be seen as bad news, especially if recession concerns take hold."
Ahead of the July 9 tariff deadline, U.S. President Donald Trump said the United States had struck a deal with Vietnam and that he could push other countries to reach similar agreements.
Although details were scant, Trump said Vietnamese goods would face a 20% tariff and trans-shipments from third countries through Vietnam will face a 40% levy.
Saxo's Chanana said the U.S.-Vietnam trade deal was broadly positive, but the tariff rate is more aggressive than expected and higher than the 10% baseline.
"What's important to watch now is how China responds, given that the move directly targets trans-shipped goods at a higher 40% tariff rate."
The Vietnamese dong slid to a record low, with UBS analysts suggesting the passing of tariff costs to exporters will likely be mitigated by the central bank through the allowance of a steady depreciation of the dong.
Progress on other deals has been slow. Japan has invoked national interests as talks with the U.S. struggled, while South Korea's President Lee Jae Myung on Thursday said negotiations were looking difficult and that he could not say whether talks would conclude by next Tuesday.
Meanwhile, Republicans in the U.S. House of Representatives moved closer to advancing Trump's massive tax-cut and spending bill, appearing at one point to overcome concerns over its cost that had been raised by a handful of hardliners.
The bill is set to add $3.3 trillion to an already swelling national debt, stoking fiscal worries. Bond investors around the world are growing increasingly nervous about government deficits in countries including Japan and the United States.
Elsewhere, the Australian and New Zealand dollars slid ahead of the U.S. jobs report. The Aussie last bought $0.65655 while the kiwi was at $0.6067, both down 0.3%.
