By Philip Marey, Senior US strategist at Rabobank

Yesterday, the US dollar was under pressure - with EUR/USD peaking at 1.1744 - as speculation about Fed rate cuts increased after comments by Trump and reports in the media that he is considering nominating the next Fed Chair in the coming months. An early nomination could make the nominee the “de facto shadow chair” as his comments (only men are reported to be on the shortlist) would carry a lot of weight in the markets regarding monetary policy beyond May 2026 when Powell’s term expires. For more details on Powell’s succession and the concept of a shadow chair, see our article in International Banker from a few months ago. Meanwhile, there was more pushback against a July rate cut by several Fed speakers yesterday, specifically Daly, Collins, Barkin and Goolsbee.

One day after the NATO summit in The Hague, European leaders met in Brussels again. Now that President Trump has made a clear connection between NATO policy and trade negotiations, European leaders think they have earned trade concessions from the US for their increased contributions to NATO. A major problem is Spain which is not willing to help defend Europe by spending 5% of GDP, but it expects the EU to protect it from US tariffs. Whether other EU countries are happy with this double free riding remains to be seen. They just assigned a lot of money appeasing President Trump (and defending Europe from Russia) but Spain could ruin the EU-US trade negotiations. Yesterday, European leaders discussed trade concessions to the US, including lowering tariffs, reducing non-tariff barriers, buying more US products including LNG, and cooperating with the US to tackle its economic concerns with China.

In other trade news, US Commerce Secretary Howard Lutnick said that a trade “deal” with China had been signed two days ago, although this appears to be essentially the truce reached last month in Geneva. He added that there are imminent plans to reach agreements with 10 major trading partners.

Meanwhile, the spinning of the Fordow attack is in full force on both sides. While the White House maintains that the nuclear facility was obliterated, Iran is downplaying the impact and both sides claim victory. Defense Secretary Pete Hegseth and Joint Chiefs Chairman Dan Caine gave a joint press conference providing more details about the air strike, but they offered no new evidence about the effectiveness of the attack.

Yesterday, the Senate Committee on Finance issued a statement that the proposed introduction of Section 899 to the Internal Revenue Code would be removed from the One Big Beautiful Bill because of a forthcoming international tax agreement announced by Treasury Secretary Scott Bessent. Section 899 would have introduced retaliatory taxes on foreign companies from countries that impose “unfair taxes” on US companies, such as undertaxed profits rules, digital services taxes, and diverted profits taxes.

“We applaud President Trump and his team for protecting the interests of American workers and businesses after years of congressional Republicans sounding the alarm on the Biden Administration’s unilateral global tax surrender under Pillar 2.  Reaching a joint understanding with the G7 means the U.S. can reclaim tens of billions of dollars that had been ceded from our tax base by Democrats’ America-Last policy. At the request of Secretary Bessent and in light of this joint understanding to preserve U.S. tax sovereignty and allow U.S. tax laws to co-exist with the Pillar 2 regime, we will remove proposed tax code Section 899 from the One Big Beautiful Bill Act, and we look forward to active engagement with Treasury on these important issues. We are committed to restoring Americans’ confidence in our representative government by putting America first.  Congressional Republicans stand ready to take immediate action if the other parties walk away from this deal or slow walk its implementation.”

The last sentence of the statement can be seen as a threat to foreign governments that the US Congress could still adopt Section 899 if the new international tax agreement is violated.

Meanwhile, progress of the One Big Beautiful Bill in the Senate was dealt a blow by the Senate parliamentarian. The Senate’s rules arbiter decided that several spending cuts proposed in the bill did not qualify for the reconciliation process that allows the bill to be passed with a simple majority. Republicans hope to remedy this by changing the wording and are still sticking to their self-imposed July 4 deadline to get the bill to President Trump’s desk. However, if the Senate parliamentarian is not going to be convinced, they may have to drop these spending cuts which would make it harder to reach their budget targets and meet the Independence Day deadline.

Day Ahead

In politics, the US Senate intended to start voting today on the One Big Beautiful Bill. However, this could be delayed by the procedural clash with the Senate parliamentarian. Over a month ago, the House of Representatives passed its version with a narrow 215-214 vote. When it comes to a vote, the margins in the Senate are also small. There are 53 Republican senators, but libertarian Rand Paul is expected to vote no because of the debt limit increase included in the bill. Other fiscal hawks, in particular Ron Johnson, Rick Scott, and Mike Lee are demanding more savings in the bill, such as bigger spending cuts and a faster expiration of clean-energy tax credits. However, this is a difficult balancing act for Senate Majority Leader John Thune because at the other end of the Republican spectrum, the “Medicaid moderates”, in particular Thom Tillis, Josh Hawley and Susan Collins think the bill’s Medicaid cuts are too deep. Lisa Murkowski, Jerry Moran and Jim Justice are also considered to be part of this group. Meanwhile, there is disagreement about the increase in the cap (to $40,000) on how much taxpayers can deduct from the amount they owe in federal taxes state and local taxes (SALT). This was negotiated by House Republicans from high tax states, such as California, New Jersey and New York. However, many Republican senators want to keep this at the level of the TCJA ($10,000).

Once the Senate has passed its version, the House could accept the adjusted version early next week and send the bill to President Trump who can then sign it into law by July 4, or reject it. However, the self-imposed Independence Day deadline is symbolic and there is no X-date until August at the earliest and the fiscal cliff from the income tax provisions in the Tax Cuts and Jobs Act is at end of the year. So a modest delay would have no major consequences other than ruining Trump’s good mood after getting the royal treatment at the NATO summit in The Hague.