- Tariff talks intensify Beyond Trump’s announcement of a trade deal with Vietnam—which will still face a 20% tariff on direct exports and 40% on transshipped goods, the week was marked more by speculation and threats than by actual breakthroughs. It ended with the administration stating it would begin sending formal letters to trading partners, detailing unilateral tariff rates scheduled to take effect on August 1.
- July 9th Deadline Arrives—Uncertainty Peaks The long-anticipated July 9th deadline is now here. While many have started to view it as “softer” than originally feared—speculating it could be extended as part of Trump’s negotiating playbook—uncertainty remains sky-high. If implemented, the tariff framework would mark the highest rates seen since World War I.
- Resilient US data dims rate cut prospects US economic momentum held firm last week, with non-farm payrolls rising by 147K and unemployment falling to 4.1%, adding to a strong JOLTS report earlier in the week. Inflation also surprised to the upside—Core PCE rose 0.2% MoM and 2.7% YoY. With labour market resilience and price pressures holding steady, markets have all but ruled out a July Fed cut, pricing just a 5% chance. The dollar extended gains for a second day, especially against the euro and yen.
- Central Bankers Signal Pause at Sintra Global central banks are largely in wait-and-see mode. Lagarde said ECB targets are met; Powell hinted at patience amid tariff uncertainty.
- UK political chaos Prime Minister Starmer’s abrupt U-turns on his flagship program triggered fresh doubts about fiscal discipline, slicing into the government’s already slim budget buffer. Market anxiety surged after he declined to publicly back Chancellor Reeves, fueling speculation over her future. Though Starmer later reaffirmed Reeves’ role, the damage was done—investor confidence wobbled, and Britain’s reputation took a hit when stability matters the most.
Global Macro
Fed cut hopes dashed by jobs
US jobs keep the strong run in place. The all-important US jobs report came in much stronger than expected helping the US dollar to gain for a second day. The June non-farm employment report came in at 147k new jobs versus forecasts for 110k jobs. The unemployment rate fell from 4.3% to 4.1%. The greenback gained on the news with the USD index climbing from three-year lows for the second day. The USD’s biggest gains were against the euro and Japanese yen.
US inflation also remains hot. The jobs numbers followed the previous week’s hotter inflation reading. Core inflation in the US rose slightly more than expected in May, with the core PCE climbing from 0.14% to 0.18% month-on-month. Year-on-year, the figure ticked up to 2.7% from 2.6%. Headline PCE came in as forecast, rising 0.14% from the previous month. In combination with the job numbers, traders have virtually written-off the chance for a Federal Reserve rate cut later this month. Financial markets see only a 5.0% chance of a cut on 30 July.
Trade deal stuck ahead of July 9 deadline. US President Donald Trump announced a tariff deal with Vietnam. President Trump announced Vietnam would now face a 20% tariff, while goods “transhipped” through Vietnam would be subject to a 40% tariff. The US will pay no tariffs on its exports into Vietnam. Vietnam had previously faced some of the steepest tariffs following the so-called “Liberation Day” announcement, due to its large trade surplus with the US, which triggered a 46% tariff.
Global Macro
“Wait and see” ahead of July 9 tariff deadline
China feeling tariff pain. China’s manufacturing sector shrank for the third straight month in June, though there were signs of resilience. The official manufacturing index inched up to 49.7 from 49.5, staying below the 50 threshold that signals growth. Inventories and hiring kept sliding, while production rose to 51 and new orders edged up to 50.2. Meanwhile, support from the government helped services and construction nudge higher, with the non-manufacturing index rising to 50.5 from 50.3.
Central bankers in “wait-and-see” mode”. It’s summer in the Northen Hemisphere, so that means it’s time for central bankers to spend time at one of their two major annual conferences – Sintra in Portugal in July and Jackson Hole in Wyoming in August. This week’s meeting in Portugal showed broad agreement among central bankers that inflation is returning to target levels. European Central Bank president Christine Lagarde confirmed the view that the central bank has achieved its target adding strength to the view that the ECB is probably finished with rate cuts and helping support the EUR. On the other hand, Federal Reserve chair Jerome Powell said inflation is at a “favorable” level but said the Fed was forced to go on hold when the size of the US tariffs became apparent. Powell said he expects higher inflation readings over the next few months: “We’re simply taking some time. As long as the US economy is in solid shape, we think that the prudent thing to do is to wait and learn more and see what those effects might be.”
Week ahead
Trade takes the spotlight
- Trade Talks in Focus: Deals or Delays? All eyes are on trade negotiations this week—with potential deals emerging and speculation swirling about deadline extensions. Deadline is Wednesday, July 9th.
- On Hold Down Under and Beyond Central banks in South Korea, and New Zealand are expected to hold rates steady as they await clearer signals from domestic demand and external headwinds. The Reserve Bank of Australia (RBA), instead, is the most likely to cut, with markets pricing in almost a full 25-basis-point cut.
- China’s Inflation Slide China’s latest price report is likely to show CPI falling for a fifth consecutive month, with factory-gate prices extending their decline. The overall message is there’s still no end in sight for deflationary pressures as a recovery in consumption remains sluggish.
- Germany’s Production Test Germany’s industrial production will offer more insight into the economy’s health. Despite optimism, last week’s drops in factory orders and inflation hint at underlying softness.
- Fed Minutes: Wait-and-See Returns The Fed minutes may bring fresh context after last week’s labour market beat. Still, expect the familiar “wait-and-see” tone to persist—especially with heightened uncertainty coinciding with key trade deadlines.
FX Views
Dollar remains fragile ahead of tariff deadline
USD Waiting for July 9. As Q3 gets underway, the key data point shaping short-term USD movement has been the nonfarm payrolls report. While the dollar initially found support after the release, it quickly gave up its gains. June’s employment data came in stronger than expected, with payrolls rising by 147,000 versus a consensus forecast of 110,000. The unemployment rate also surprised to the downside, falling to 4.1%. These headline figures helped ease concerns that tariffs and policy uncertainty were dampening job growth, reinforcing the view that the U.S. economy remains broadly resilient. That said, the market reaction suggests investors are staying cautious. Despite a solid labor print, there’s little appetite to chase the dollar higher ahead of expected clarity on the tariff regime by July 9. With a long-weekend in play, those holding long USD positions may face renewed volatility when Asia markets reopen on Monday. With July 9 now on the near horizon, long-dollar positioning looks increasingly fragile.
EUR Taking a pause. EUR/USD lost momentum after a nine-day rally, briefly testing $1.18 but failing to hold the level. The pair pulled back to find support near 1.175, with technical indicators flashing overbought conditions. Despite the pause, the euro remains up nearly 14% year-to-date, raising concerns that continued strength could weigh on the region’s export competitiveness. ECB Vice President de Guindos downplayed rate cut prospects, reiterating that policy is “in a good place” and emphasizing the need for clearer trade and fiscal direction. While the euro hit a 2025 high at $1.1829, it still trades below its historical average of $1.1829. Near term, markets are watching for developments in U.S.–Europe trade talks ahead of the July 9 deadline.
GBP Political stability restored, Sterling holds key supports. UK political jitters eased after Prime Minister Starmer reaffirmed support for Chancellor Reeves, calming speculation about fiscal policy changes. The government’s commitment to fiscal rules has reassured markets, but attention now turns to economic fundamentals. The chart shows weak oil price is GBP supportive. GBP/USD is testing its 21-day EMA near 1.3599; a break below would suggest a loss of upward momentum, with key support in the 1.33 area likely to hold on initial declines. Further downside targets include 1.3140-1.3207, with the 200-day moving average at 1.3065 as a medium-term anchor. Upcoming GDP, industrial production, and trade data will be pivotal for the pound’s direction, with any signs of economic resilience likely to underpin sterling in the near term.
CHF Turn possible? The Swiss franc continued to strengthen last week, notably seeing the USD/CHF back to 2015 lows, but the franc was weaker versus the SEK and JPY. Swiss inflation came in higher than expected, but the headline rate remains concerningly low for the Swiss National Bank with the headline annual rate at a meagre 0.1%. The core number climbed from 0.5% to 0.6%. The low inflation rate means the SNB can drop interest rates back below the current 0.00% in a move that would be reminiscent of the ultra-low policy era of the 2010s. Technically, the USD/CHF has seen a turn in momentum – the relative strength index printed a buy signal last Thursday – so the pair might rebound from recent lows. Topside targets are to 0.7985 and then 0.8020, downside 0.7910. Consumer confidence numbers on Friday will be the upcoming week’s Swiss key release, but likely of only moderate impact.
CNY Services PMI slips, yuan faces headwinds from weak demand. China’s Caixin Services PMI fell to 50.6 in June, its lowest in nine months, reflecting subdued global demand and a sharp drop in new export business. The official non-manufacturing PMI also hovered just above the contraction threshold, signaling persistent softness in the services sector. Technically, USD/CNH faces key resistance levels of 21-day EMA of 7.1766, 50-day EMA of 7.1994 and 200-day EMA of 7.2308 next. USD/CNH is still below average of the 30-day trading range, which suggests a potential positive trend if it moves above the key psychological handle of 7.2000. Upcoming CPI and PPI data will be crucial for gauging the next move, as any further signs of disinflation could prompt policymakers to consider additional stimulus, potentially weighing further on the yuan.
JPY BoJ dovish shift caps yen, USD/JPY eyes key support. A notable shift in tone from the BoJ, with board member Takata emphasizing the need for continued accommodative policy, has reinforced expectations that rate hikes are on hold for now. This dovish stance comes amid ongoing economic uncertainty and has kept the yen on the defensive. USD/JPY is consolidating in a tightening range below the 150 level, with technicals favoring a negative break in the second half of 2025. A decisive move below the 138-141 support zone would signal a broader reversal, potentially ending the multi-year floor in place. Conversely, the next key resistance lies at the 200-day EMA of 148.12. Near-term, traders will watch Japan’s current account data for further clues, but the bias remains for yen strength if risk sentiment sours or the BoJ signals any policy shift.
CAD Exports to the US drop. Q3 has begun with continued risk-on sentiment, as markets largely dismiss mixed macro data. Focus remains on the upcoming July 9th tariff. A new U.S.–Vietnam trade agreement announced this week, slashing tariffs on Vietnamese imports from 40% to 20%, has lifted expectations for further deals with key partners, including Canada. Also, a stronger than expected jobs report in the US for the month of May did little to support the US dollar. As a result, the greenback has weakened, supporting the Canadian dollar, which has fallen below 1.36 and now targets its 2025 low of 1.354.
Speaking of trade, Canada’s trade dynamics continued to shift in May, as the share of exports heading to the U.S. fell to 68%, its lowest level since at least 1997 outside of the pandemic period. Canada’s export diversification gained traction in May, with shipments to non-U.S. markets reaching a record high, driven by robust demand for gold in the UK, crude oil in Singapore, and aluminum and pharmaceuticals in Italy. This shift played a crucial role in cushioning the impact of softer trade with the U.S. and helped narrow the overall trade deficit. Still, it marks only a modest step away from Canada’s deep-rooted economic reliance on its southern neighbor.
AUD RBA rate cut looms as services sector grows, AUD/USD at a crossroads. Australia’s services sector showed renewed strength in June, with the PMI rising to 51.8, the fastest pace since May 2024. However, inflationary pressures are easing, with input and selling price growth slowing notably. This cooling in prices has reinforced expectations for a 25bp rate cut by the RBA. On the technical front, AUD/USD is caught between conflicting signals: a sustained move above 0.6600 key resistance could open the door to 0.6714-0.6727, while a break below 0.6357 would confirm a negative reversal and set up a deeper retracement of the April-June rally. In the bigger picture, further weakness is likely to hold above the April low, supporting a longer-term base. Watch for NAB business confidence and the RBA’s decision, due Tuesday to drive near-term volatility.
MXN New 2025 high. Despite weak domestic data, the Mexican peso extended its rally following U.S. payroll figures, pushing toward a new year-to-date high. The price action echoes patterns seen during Trump’s first term, when the peso weakened ahead of the election but ultimately outperformed. The currency’s strength is especially notable given a sharp 12.5% annual drop in gross fixed investment in April, seen as fallout from U.S. trade policy, which exceeded expectations but had limited impact on FX or rate markets.
Also, EM bonds, equities, and currencies have all posted their strongest six-month performance in years, fueled in part by capital rotation away from U.S. assets, long favored during a decade of outperformance. Donald Trump’s policy stance has amplified this shift, sparking concerns over the durability of U.S. market leadership and encouraging investors to seek yield and diversification in emerging economies.
Adding to the supportive backdrop, Mexico recorded a $1.03 billion trade surplus in May, fueled by a 1.8% rise in non-oil exports even as oil shipments plunged 35%. Meanwhile, record-high remittances of $5.5 billion and a measured 50bp rate cut by Banxico, with further easing contingent on inflation trends, have helped reinforce investor confidence ahead of upcoming U.S.–Mexico discussions on trade, border security, and migration.
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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.
