President Donald Trump will impose a minimum global tariff of 10%, with imports from trade-surplus countries facing duties of 15% or more, the White House announced late Thursday. The statement came hours before Trump’s deadline, after a second pause in country-specific tariffs to allow negotiations. While timing of the new rates remains unclear, the muted FX market suggests investors had largely priced in the move. Still, the fallout is expected to weigh on global trade and growth.
Dollar strength looks durable
The US dollar index’s flirtation with the 100 level is more than just technical drama; it’s a reflection of shifting macro sentiment. The index closed July over 3% up, marking its first monthly gain of 2025. That 100 threshold, once a pandemic-era support, now looms as a psychological and technical resistance, reinforced by retracement levels and moving averages. A more confident breakthrough would open the door for further upside. A stronger-than-expected US jobs report today could be that catalyst.
The US dollar’s rebound in July was powered by a compelling trifecta: renewed optimism around US trade negotiations, robust US economic data, and a hawkish Federal Reserve (Fed) stance. The combination of easing tail risks from tariff disputes, resilient growth metrics, and rate-cut resistance from Fed Chair Powell has reawakened bullish dollar sentiment – sending the buck back toward the top of the G10 leaderboard.
In a volatile week of trade diplomacy, President Trump reignited tensions by slapping 25% tariffs on India and labelling it a “dead economy” amid stalled negotiations. Canada also came under fire over its recognition of Palestinian statehood, hit with a 35% tariff rate, though that will actually have a modest impact because of USMCA exemptions which will keep the effective rate relatively low. Meanwhile, a deal with South Korea introduced a fresh 15% export tariff, Brazilian goods were hit with a steep 50% duty and Switzerland was hit with 39%, which has weakened the franc somewhat. However, breakthrough deals with Japan and the EU offered much-needed reassurance to investors along with a 90-day extension for Mexico, all of which helped temper global trade anxieties and signalled some stability in key US economic partnerships.
Still, the fallout is expected to weigh heavily on global trade and growth, with equity markets likely to retreat from recent highs as optimism fades. Persistent uncertainty will further dampen corporate confidence, potentially delaying investment and hiring decisions – adding another layer of pressure to the already cooling growth outlook.
Meanwhile, the Fed held rates steady at 4.25–4.50% this week, but two governors dissented in favour of looser policy for the first time in more than 30 years. However, Powell chose to stand firm, keeping rates on hold while it becomes clearer what the inflationary impact of tariffs will be. Market odds for a September cut dropped sharply – from nearly 65% to 37%.
Powell’s caution looks increasingly warranted as there are multiple signs inflationary pressures are building again. The Fed’s preferred inflation gauge, core PCE, held firm at 2.8% year-on-year in June, matching May’s pace and remaining well above the 2% target. Headline PCE also accelerated to 2.6%, up from 2.4%, with tariffs clearly filtering through to consumer prices. Yet, consumer spending rose just 0.3%, and only 0.1% after adjusting for inflation – a sign that households are feeling the pinch.
Meanwhile, the labour market continues to show resilience. Initial jobless claims ticked up slightly to 218,000, but still came in below expectations for the sixth consecutive week. Continuing claims held steady at 1.95 million, suggesting laid-off workers are finding new jobs at a decent clip.
All eyes now turn to the non-farm payrolls report. If job growth holds up and wage pressures remain contained, it could reinforce the “Goldilocks” narrative and keep the US dollar’s recovery on track.
Euro feeling the pinch
The euro fell 3% versus the US dollar in July – its worst week since April 2022. But after its sharpest upward move since 2003, we’re not surprised to see the upside momentum stall and cannot rule out an extension of the rally later in the year. In the short-term though, a move towards $1.13 or even $1.12 could be on the cards.
Rate differentials were overshadowed by flow-driven dynamics, hedging activity, and geopolitical factors earlier in the year. But as those influences fade, traders are once again recalibrating around relative yield appeal. As the historic link between US front-end yields and dollar strength reasserts itself, there is scope for further downside risk for EUR/USD given the Fed maintains a cautious stance signalling only modest easing. However, by 2026, we’d expect the ECB cycle to trough at a time when the Fed will still be on an easing path, implying that ECB-Fed relative yield differentials can help a yield-driven EUR/USD bull case further down the line.
Options market data shows that short-term sentiment has turned sour for EUR/USD. Risk reversals – which measure the difference in demand for hedging against EUR/USD strengthening versus weakening – indicate a short-term bearish correction on a 1-month tenor. This suggests that investors, over the next month, are leaning more toward EUR/USD weakening rather than strengthening. However, long-term sentiment for EUR/USD remains euro-positive, still driven -albeit less forcefully – by the dollar weakness narrative, with the euro positioned as the second most liquid alternative.
Sterling summer’s slide
GBP/USD hit a two-month low yesterday, finding support at $1.32. Sterling posted one of its worst monthly declines against the dollar since 2022/2023, when Liz Truss’s mini budget sent the currency reeling. The Fed’s reaffirmed hawkish stance was the main bearish driver this week. However, sterling, unlike the euro, was less “humiliated”, declining “just” under 2% this week compared to a 3% drop for the euro against the dollar.
Markets are pricing in a 94% chance of a rate cut from the Bank of England (BoE) next week, with expectations for two nearly full cuts by year-end. A three-way split – no cut, a larger cut, or a 25 basis-point cut – similar to May’s decision, is plausible. While the BoE’s tone has grown more dovish, conflicting risks tied to rising inflation and a softening labor market should keep forward guidance balanced, which should temper bearish pressures.
This leaves U.S. developments as the primary, likely bearish, driver of GBP/USD price action for the short term. A strong non-farm payrolls print and a lower U.S. unemployment rate today could push the pair below 1.32.
Meanwhile, EUR/GBP found a breather yesterday, snapping a three-day losing streak. It hit support at 0.86100 and bounced back, remaining tightly range-bound between 0.8610 and 0.8660.
Despite recent softness, the pair has had a positive performance this month: it reached end-of-2023 highs of 0.8769 last week and has risen nearly 1% since the start of July. While the recently announced EU–U.S. trade deal introduces fresh uncertainty, the euro continues to benefit from a more assertive hawkish policy stance, a relatively resilient macro backdrop, and its role as the top recipient of flows amid U.S. unpredictability.
For the remainder of the week, with the euro slightly more cushioned from reputational damage earlier in the week, Eurozone inflation data tomorrow could provide the catalyst for a break north of the recent range, should it come in hotter than expected.
Dollar index holds in top 5% of 7-day range
Table: Currency trends, trading ranges & technical indicators
Key global risk events
Calendar: July 28-August 01
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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.
