Tariffs & Tension: FX Markets Wait as Trump Turns Up the Heat.
-
USD shows resilience amid growing trade threats from Trump, as markets prioritize Fed policy and economic data (especially CPI) over unpredictable tariff developments.
-
FOMC minutes could be pivotal—if they reveal a more dovish stance, the bar for a rate cut lowers and the dollar could weaken.
-
Tariff impact is more regional, notably in Asia: the yen is pressured by Japan-focused trade talk, while the peso may gain from diverted investment.
-
EUR/USD holds near 1.17, with limited eurozone data and markets cautiously watching for Trump’s promised EU tariff letter; ECB may respond with softer language.
-
GBP/USD remains stable, even as Trump hints at copper tariffs, penalties on BRICS, and future pharmaceutical duties—suggesting markets are not yet pricing in major economic fallout.
USD: Dollar Treads Water Amid Trade Uncertainty
Despite escalating tariff rhetoric from President Trump, the US dollar remains largely unaffected, with the FX market treating tariff threats as negotiating tactics rather than long-term policy shifts. The Fed narrative continues to steer dollar movement, as traders focus more on economic data than on volatile trade headlines. Upcoming events, such as next week’s CPI release and the June FOMC minutes (due tonight), could provide more clarity. If the minutes reveal a stronger dovish stance than expected, the dollar may weaken, especially if rate cuts appear easier to justify.
In the meantime, tariff-related news is more likely to impact specific currencies with higher exposure to trade risk, particularly in Asia. For example, the yen remains under pressure due to trade concerns tied to Japan, while the Philippine peso might benefit from shifting investor flows. Additionally, a sharp increase in copper prices could have lasting effects on copper-exporting economies.
EUR: Holding Ground While Trump Eyes Europe
EUR/USD has found temporary support around the 1.17 mark. While the USD has firmed slightly on post-NFP data, the euro isn’t suffering significantly as the dollar’s value isn’t considered overly cheap anymore. The eurozone’s economic calendar is light, with attention turning to upcoming remarks from ECB officials like Lane and Guindos. Given the renewed threat of US tariffs on EU goods, we may hear more cautious—or even dovish—tones from the ECB in coming days.
Trump has said a letter detailing new EU tariffs is imminent. If announced, this could pressure the euro slightly in cross-currency terms. However, the impact on EUR/USD is less clear-cut, as US tariffs on Europe could just as easily hurt the dollar as the euro. For now, markets still expect a deal between the EU and US by the August 1 deadline, keeping EUR/USD anchored between 1.16 and 1.18 barring any data surprises.
GBP: Sterling Steady Despite Trump’s Trade Salvo
The pound remains relatively stable near 1.3600 against the dollar during European trading hours, showing little reaction to President Trump’s latest tariff threats. The US Dollar Index (DXY) hovers near 97.50, unchanged and close to its weekly highs.
On Tuesday, Trump floated a 50% tariff on copper imports to support domestic output—his fourth targeted sector after autos, steel, and aluminum. He also hinted at further tariffs: a 10% levy on BRICS nations for pursuing de-dollarization strategies and a 200% tax on pharmaceutical imports next year. Despite the bold rhetoric, markets appear to be taking a “wait-and-see” approach, with GBP/USD remaining broadly unmoved for now.