A look at the day ahead in European and global markets from Ankur Banerjee

Markets shrugged off the U.S. Senate passing President Donald Trump's "big, beautiful bill", with investor attention fixed to the path for U.S. interest rates and trade deals ahead of the United States' re-imposition of tariffs on July 9.

Trump's tirade against the Federal Reserve and its Chair Jerome Powell to lower rates has stoked investor worries of the central bank's independence and credibility. It has also led to traders pricing in the possibility of early rate cuts.

But Powell, at a central bank gathering in Portugal, reiterated that the Fed plans to "wait and learn more" about the impact of tariffs on inflation before lowering interest rates.

That, along with relatively upbeat labour data on Tuesday, has left investors none the wiser about when the Fed would cut rates and watching out for Thursday's nonfarm payrolls data for cues.

European stocks are set for a slightly higher open after a mixed Asian session, where Japan's Nikkei dropped 0.75% whereas Hong Kong's Hang Seng Index gained 0.75%.

TARIFF DAY

Trump's tax bill, which will add to the already enormous U.S. debt pile, slash taxes, reduce social safety net programs and boost military and immigration enforcement spending, now heads to the House of Representatives for possible final approval.

Meanwhile, with the July 9 tariff day creeping closer, countries are scrambling to agree trade deals with the U.S. India is likely ink a deal whereas Japan is not, Trump said.

All that has left markets in flux as we head into the second half of the year. The first half was dominated by relentless U.S. dollar selling as investors grappled with Trump's chaotic trade policies and looked for alternative places to park their money.

The euro has had a blistering 2025 so far gaining 14% and perched at its highest level since September 2021, but whether it could replace the dollar as the world's reserve currency of choice is an open question.

Central bankers gathered for an annual conference in the Portuguese resort of Sintra do not expect a major challenge to the dollar's status any time soon.

"It's not going to happen just like that overnight. It never did historically," said European Central Bank President Christine Lagarde.

"But there is clearly something that has been broken. Whether it is fixable, or whether it is going to continue to be broken - I think the jury's out."

Key developments that could influence markets on Wednesday:

Economic events: Euro zone unemployment rate for May, trade deal updates

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(By Ankur Banerjee; Editing by Christopher Cushing)