- Tariff letters have been sent out to roughly 20 trading partners this past week, re-affirming, for the most part, tariff levels announced back on April 2nd — Liberation Day. The deadline for their implementation has now been pushed to August 1st.
- Key highlights are a 25% tariff on imports from Japan and South Korea, nudging up Japan’s rate from 24% (April 2nd) to 25%, matching South Korea’s.
- A notable exemption was Brazil. Despite the U.S. being in a trade surplus with Brazil—a key factor in determining the ‘appropriate’ tariff rate—Trump announced a 50% tariff, sharply up from the 10% announced in April. The decision was politically driven, citing unfair treatment of Bolsonaro, rather than any economic factor.
- Markets have grown less sensitive to tariff news, likely on expectations that these levels may eventually come down. Despite some dents, the S&P continued its upward trajectory. The euro, a key beneficiary of recent dollar weakness, saw its rally wane, and the Dollar Index (DXY) rose almost 0.7% week-to-date.
- The Fed and ECB maintain a cautious, data-dependent approach. From ECB speakers to Fed minutes, both central banks remain wary of the inflationary impact tariffs may have, alongside adverse effects on growth.
- The UK economy shrank by 0.1% in May, undershooting the consensus view for a 0.1% rise. Manufacturing was the main driver of the weakness, falling by 1%, following a 0.7% decline in April.
Global Macro
Trump continues to drive markets
Tariffs on-again, off-again. After a massive week of tariff news, the core takeaways are threefold. First, letters sent to trading partners outlined tariff levels that were nearly identical to those announced on Liberation Day. Second, the July 9th implementation deadline was quietly pushed back to August 1st. And last, even that revised date feels flexible, with Trump suggesting it isn’t “100 percent firm.”
Copper hits record. President Trump also announced a 50% tariff rate on copper imports, double the consensus view of 25%. Comex copper jumped as much as 17% with September 2025 futures topping US5.80 per pound before later softening to US5.50 per pound by New York close on implementation timeline uncertainty.
Fed still open to cuts. The Fed minutes for the June meeting were also released this week. Most Fed officials support cutting rates this year, according to the June meeting minutes. While some flagged tariffs as a lasting inflation risk, others saw only a limited impact. A few members were open to a July rate cut. Many also expect the job market to soften further.
Global Macro
European bankers relax, but worries down under
UK GDP falters again. An unexpected 0.1% m/m decline in GDP for May suggests the contraction seen in April (-0.3%) may not have been a one-off. Manufacturing was the chief drag, falling by 1% and amplifying concerns about economic momentum. With growth likely to remain sluggish through the rest of the year, the data is set to reinforce the Bank of England’s dovish stance.
ECB hits the beaches. The Eurozone has fallen into a summer lull. European Central Bank speakers, Lane, Guindos, and Nagel all confirmed over the last week that the central bank is in no rush to ease further, emphasizing a data-dependent, meeting-by-meeting approach, particularly in the face of global trade uncertainty.
RBA and RBNZ surprise: The Reserve Bank of Australia surprised traders by pausing its rate cuts, keeping the cash rate steady at 3.85%. Despite the unexpected move, longer-term borrowing rates edged up just slightly—now hovering a bit above 3% for early 2026. The RBA’s vote split (six for a hold, three wanting a cut) added a layer of uncertainty. Some worry the timing may be off, but if the next inflation report confirms further cooling, the rate cutting path could still be intact. The Reserve Bank of New Zealand kept rates on hold as expected but surprised the market by saying “subject to medium-term inflation pressures continuing to ease in line with the committee’s central projections, the committee expects to lower the Official Cash Rate further.”
Week ahead
Inflation in focus
Inflation Watch Inflation for the US, UK and the EU is out next week. It will be telling of economic momentum, and perhaps tariffs-induced inflation pressures which could shift central banks’ rate expectations—driving price action consequently.
Fed’s Summer Test: CPI and PPI in Focus The inflation report for the US will be key – as the Fed remains wary of the inflationary impact of tariffs, which Fed officials expect to materialize in the summer months. CPI prints are expected to edge up both m/m% and y/y%, as well as core. PPIs, both final and intermediate demand, will also be observed—these will show earlier signs of inflation pressures should there be any.
Germany’s Sentiment Check: Ifo vs. Tariffs The German Ifo survey releasing this week will be watched for further clues on how far the protectionist trade policies of the US will continue to overshadow the earlier euphoria from Germany’s big spending plans.
Mood to Machinery Beyond sentiment data, with the University of Michigan sentiment indicator out next Friday, markets will be laser-focused on hardline US data—with eyes on industrial production in search of any signs of waning economic momentum.
BoE on Edge UK labour market data is out next week and will be highly scrutinized—as a cooling job market has been the driving factor behind the BoE’s more dovish tilt recently and will likely heighten expectations for further cuts should it confirm the cooling trend. A disappointing GDP print last Friday added to the dovish tone.
FX Views
You’ve got mail
USD Tariff threats fail to rattle the dollar. Ahead of July 9, investors were caught off guard by news that the U.S. will impose a 25% tariff on imports from Japan and South Korea starting August 1. In parallel, the administration has issued additional letters detailing new tariff rates, effective August 1, for Malaysia, Kazakhstan, South Africa, Laos, Myanmar, Philippines, Brunei, Moldova, Algeria, Iraq, Libya, Sri Lanka, and a notably Canada with 35% and a 50% rate for Brazil. While there are some rate adjustments from the previous April 2 levels, the more significant development is the extension of the July 9 deadline to August 1. That provides less than three weeks for negotiations and potentially more deals to be finalized. Despite rising uncertainty, global risk sentiment stabilized, and the U.S. dollar rebounded from its 2025 low of 96.3, gaining for eight consecutive sessions to reach its 20-day moving average at 97.7, a technical bounce in line with broader downtrend dynamics. Whether the dollar has formed a bottom will depend on upcoming trade policy updates, the onset of Q2 earnings season in U.S. equity markets, and the Federal Reserve’s commentary expected at the end of the month.
EUR Lack of a fresh catalyst. Threats alone appear to have lost their magic in triggering significant flows into the euro at the expense of the dollar. The common currency increasingly lacks fresh catalysts needed to push higher, with markets now requiring more negative U.S. news to justify further euro upside. On the tariff front, no concrete steps forward in trade talks between the U.S. and EU have been announced yet. Also, with expectations for both the ECB and the Fed largely priced in, and both central banks in wait-and-see mode, we expect the euro to continue its tepid decline, hovering around the $1.17 support level until new catalysts emerge.
GBP BoE dovish tilt caps Sterling rally, eyes on inflation data. The Bank of England’s recent signals suggest a dovish tilt, with policymakers advocating for rate cuts as insurance against economic weakness. This macro stance has tempered expectations for rate cuts, even as the UK economy faces persistent headwinds. GBP/USD corrected nearly 2% from recent highs of 1.3789. GBP/USD price action signals a downturn, with the pair hovering below its previous 21-day EMA support of 1.3592. The next key support levels to watch include 50-day EMA of 1.3484 and 200-day EMA of 1.3090. Traders will be watching UK CPI, average earnings, and unemployment figures closely. Softer inflation or labor data could reinforce the case for rate cuts and trigger a pullback in sterling, while upside surprises may delay the reversal and keep GBP supported in the near term.
CHF Pause at highs. The Swiss franc remained mostly stronger over the last week but has not yet been able to make a new high versus the US dollar suggesting a slight pause in the CHF’s non-stop gains – at least for now. A quiet week in terms of data from both the US and Switzerland meant that the USD/CHF was mostly driven by broader risk sentiment. Technically, key moving averages continue to point lower, suggesting a downtrend, but this month’s turn higher in the momentum-indicating RSI also points to a potential slowdown in the CHF’s gains. Order levels for the week ahead target higher to 0.7980 and lower to 0.7915. Looking ahead, producer prices are due on Monday and trade balance on Thursday.
CNY China’s growth ambitions underpin yuan, but data risks loom. China’s state planners project the economy will surpass $19.5 trillion this year, emphasizing resilience and innovation despite ongoing foreign technology restrictions. This macro backdrop has lent some stability to the yuan, as authorities signal confidence in meeting growth targets and countering external headwinds. USD/CNH is still below key psychological handle of 7.2000. A break above key resistance levels of 21-day EMA of 7.1768 and 50-day EMA of 7.1954 would be key to sustaining positive price action. Upcoming releases including trade balance, new loans, fixed asset investment, GDP, industrial production, and unemployment will be pivotal. Any disappointment could trigger renewed volatility, while strong prints may reinforce the yuan’s stability and support further appreciation.
JPY Tariff uncertainty weighs on sentiment, yen eyes key resistance. Japanese regional firms are showing caution, delaying investment amid tariff and trade policy uncertainties. While the immediate impact on exports is limited, concerns about weakening global demand and rising US prices are growing, keeping the macro backdrop fragile. USD/JPY is consolidating in a tight range below the 150 psychological resistance, following a negative trend in the first half of the year. USD/JPY currently sits above 21-day EMA 145.27 key support with the next key resistance level of 200-day EMA of 148.04 on the horizon. Market participants will closely watch industrial production, trade balance, and national core CPI for fresh direction, as these releases could tip the balance for the yen’s next move.
CAD Double bottom? Late Thursday, President Donald Trump announced that the U.S. will impose a 35% tariff on Canadian products starting August 1. It remains unclear whether this move is intended to pressure Canada’s trade negotiation team into offering further concessions, but the Canadian government now has less than three weeks to avoid these higher tariffs. Following the announcement, the CAD initially rose to 1.373. However, U.S. officials later clarified that goods compliant with CUSMA will remain exempt, offering some relief to bilateral trade. Still, the timing isn’t ideal, as Canada prepares for key macro data releases on Friday morning ET, and the Bank of Canada’s policy decision later this month. This month, the USD/CAD has bounced from 1.355, near its 40-month moving average of 1.358, climbing to 1.373 and ending a five-month downtrend. The pair had dropped from a two-decade high of 1.479 to a 2025 low of 1.354 on June 16. Although it attempted to push lower, reaching a fresh low of 1.355, it has struggled to stay below 1.36. This has shaped a possible double-bottom near the three-year average of 1.363. With the U.S. dollar shedding its bearish tone after the tariff news, the CAD remains under pressure. It currently trades above its 20-day moving average (1.366) and could break through the 40-day average (1.371) if Friday’s employment data disappoints. The next resistance is at the 60-day moving average (1.376).
AUD RBA’s transparent shift lifts Aussie YTD highs, but technicals cloud outlook. The Reserve Bank of Australia’s new commitment to transparent communication—publishing board votes and increasing public engagement—has recalibrated market expectations. The surprise decision to hold rates, with a 6-3 vote, has reduced the likelihood of near-term cuts, supporting the AUD. A more positive risk environment has also benefited the currency, as investors seek yield and stability. Technically, AUD/USD has pushed to fresh year-to-date highs, approaching the 0.66 handle. However, the outlook is mixed: a sustained break above 0.6600 could open the door to 0.6714-0.6727. A drop below 21-day EMA of 0.6533 would signal a deeper correction. The broader trend suggests consolidation, with the April low likely to hold as a base. Traders will focus on upcoming employment data, which could provide the next catalyst for direction.
MXN Peso rally stalls amid Brazil tariff tensions. In June, Mexico’s headline inflation eased to 4.32% year-over-year, down from 4.98% a year earlier, reinforcing the disinflationary trend observed through 2025. Core inflation rose 0.39% month-over-month, indicating persistent underlying pressures, while non-core prices fell 0.10%, led by declines in food and energy. However, annual non-core inflation edged up to 4.33%, reflecting ongoing volatility. With inflation still above target and core readings firming, market expectations have shifted toward a more cautious 25 bp rate cut by the Bank of Mexico to 7.75%. Although the peso had strengthened to 18.55 per U.S. dollar, up 12% year-to-date, momentum has stalled amid renewed trade tensions, particularly tariff threats by former President Trump targeting Brazil, which have weighed on broader Latin American currencies.
BRL Real shaken by 50% tariffs. Until recently, Brazil had been relatively shielded from rising global tariff tensions, thanks to its diversified trade ties beyond the United States, with strong connections to Europe, China, and other Latin American nations. That buffer collapsed abruptly when U.S. President Donald Trump announced a sweeping 50% tariff on Brazilian goods, jolting markets and triggering a 2% drop in the Brazilian real, the sharpest decline among emerging-market currencies. The announcement came just as Brazil prepared to host a pivotal BRICS summit, amplifying the impact of Trump’s renewed criticism of the bloc and his pointed comment that “Brazil hasn’t been good to the U.S.” The looming tariff, set to take effect August 1, has already begun pushing up coffee prices. In 2023, Brazil accounted for roughly 35% of U.S. unroasted coffee imports, the highest share by any single supplier. During Trump’s first term, similar tariffs prompted Brazil to divert more commodity exports to China, eroding U.S. market share in key sectors like soy.
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