Volatility flat, optimism high
Five of the seven biggest US trading partners were notified over the last week that new tariffs will go into effect on August 1. With less than three weeks to go, negotiation teams from Europe, Canada, Japan, South Korea and Mexico, already deep into talks, are working fast to avoid tariffs above 25%. Even as President Trump returns to pressure tactics, investors appear unfazed by the renewed tariff antics. Volatility has stayed subdued since last Monday when Trump confirmed that letters were sent out worldwide. Instead of pulling back, markets look to be positioning for either another T.A.C.O. or new bilateral agreements. The administration has been dropping hints for months about deals in the pipeline, and investors may be overly optimistic in expecting those announcements any day now.
Market confidence is running high and nowhere is that more obvious than in Bitcoin’s weekend breakout. The cryptocurrency surged to a new all-time high following fresh 30 percent tariff threats targeting Europe and Mexico. Perhaps, investors feel they have seen this movie before and are positioning for the optimistic outcome where negotiations play out and deals follow.
That bet comes with risk. So far, concrete agreements have only materialized with the UK, China, and Vietnam. The rest remains in play. If negotiations stall, especially with key partners like Europe, Canada, and Mexico, and tariffs take effect as outlined, markets could be caught off guard. A sharp fly-to-quality move would likely follow, snapping sentiment back to what we saw during April’s volatility spike.
Meanwhile, the dollar’s rebound has turned heads, though it’s too early to call it a comeback. Unlike the softness following the Liberation Day announcement, it’s doing the opposite, in the middle of renewed tariff theatrics, rallying off its 2025 low of 96.3 and climbing eight straight sessions since July 1. It’s now sitting above its 20-day moving average at 97.7. The move lines up with a downtrend technical bounce but still came as a surprise. Some are beginning to ask whether the recent bounce marks a bottom for the dollar, and if it signals a broader shift in sentiment. So far, market tone remains optimistic, with investors positioning for trade deals and little support for the usual sell-America narrative. Still, short-term direction hinges on two key signals; corporate earnings and inflation.
The second-quarter earnings season kicks off this week, and it’s a key test. Many companies suspended guidance or slashed forecasts during April’s chaos and then revised them upward again. However, the actual impact of the still elevated effective tariff rates and the stop-start policy moves haven’t fully hit the tape. These reports may finally show what businesses in different sectors of the economy faced at the peak of uncertainty, what’s corporate America outlook for the second half of 2025, and whether current market confidence has legs.
On the other hand, there’s fixed income, which is back on retreat mode. The recent signing of the OBBB agreement has stirred concerns in the Treasury market, with expectations rising for heavier issuance to fund the deficit. That supply pressure is already weighing on yields. At the same time, the bond market may be front-running this week’s inflation data, which could bring fresh noise, especially out of the US.
This means macro is back in the spotlight this week. CPI reports start dropping Tuesday, and they could shift sentiment fast. US inflation is projected to rise to 2.7 percent from 2.4 percent, while Canada is expected to tick up to 1.9 percent from 1.7 percent. The UK follows Wednesday, holding at 3.4 percent, and the Eurozone and Japan round things out Thursday, with inflation expected flat at 2 percent in the Eurozone and down to 3.4 percent in Japan. If those numbers land hot, fixed income may not have finished repricing.
Trump turns up the heat on Europe
Over the weekend, Donald Trump threatened to impose a 30% tariff on EU goods starting next month if improved trade terms aren’t reached. An additional 10% to rates announced on April 2nd.
Despite the threat, Europe—and the markets—appear to be looking beyond the rhetoric. The European Commission remains committed to securing a deal and has extended its suspension of countermeasures against the US. Originally scheduled to take effect on July 15th, the suspension now runs until August 1st to allow more time for negotiations.
The consensus is that these tariff levels will ultimately be lowered, with many viewing the threats as a tactic to increase pressure on the bloc in the final stretch of talks.
Nonetheless, the new developments have fueled market movements that began with the wave of tariff headlines last week: the euro opened lower while the dollar strengthened. Why? With markets placing less emphasis on tariff noise, it’s natural that the oversold US dollar—tariff news’ main casualty over the past six months—is now poised to recover.
As the week kicks off, all eyes remain on the evolving EU–US trade negotiations, with the potential deal still hanging in the balance.
While headlines may stir short-term volatility, we continue to believe that any agreement—particularly one that reduces tariffs—will have a muted directional impact on EUR/USD, given that both currencies stand to benefit. The pair remains primarily tethered to US macro data and central bank rate expectations, with the ECB and Fed continuing to shape the broader narrative.
On the data front, the euro area’s final HICP reading for June is expected to confirm a 2.0% rise in headline inflation, aligning with the ECB’s target. Markets will be parsing the details closely, especially the services component, which remains sticky and could influence the ECB’s tone heading into the next meeting.
Meanwhile, industrial production figures for May are likely to show a modest uptick, but won’t be enough to shift the eurozone’s near-term growth outlook, which continues to be clouded by global uncertainty and lingering tariffs pressures.
Expect EUR/USD to remain capped below key resistance at $1.1750, with price action still respecting the descending trendline from the July 1st YTD high. Next key support zones in sight are around $1.1645 and $1.1600.
This week’s inflation data for both euro area and the US—alongside any developments from Washington—will be pivotal in determining whether EUR/USD can regain upward traction or slip further into correction territory.
Pound pounded by growth gloom
Sterling ended Friday on a sour note, down over 1% against the dollar over the past week. A second straight monthly contraction in UK GDP has intensified fears of stagnation, prompting traders to increase bets on a Bank of England rate cut in August.
Options markets are flashing red, with risk reversals nearing their most bearish levels since February, highlighting deteriorating sentiment. Investors appear increasingly impatient ahead of this week’s CPI and labour data, which are expected to offer further insight into the UK’s bleak economic outlook—adding more pressure on the pound.
Technically, GBP/USD has broken below its 21-day moving average and sellers are now probing the 50-day. Next is the mid-June lows around $1.3371.
If no correction follows from this level, the decline may continue toward the target range of $1.3139–$1.3200.
With fundamentals weakening and momentum fading, the balance of risk remains firmly tilted to the downside for pound sterling, especially as dollar strength returns and global trade uncertainty continues to weigh, despite the UK-U.S. deal in place.
DXY pushes higher
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: July 14-18
All times are in BST
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
