Tariff Trouble & Tax Threats Weigh on USD.

  • US-China trade friction resurfaces, with tariff hikes and political posturing threatening risk appetite and dollar strength.

  • Potential ‘revenge tax’ in Trump’s tax bill could impose up to 20% withholding taxes on foreign entities, further deterring global investment in US assets.

  • Market focus this week includes US jobs data, ISM manufacturing, and Fed speakers, with Waller backing rate cuts and 53bp in easing priced in.

  • The euro remains firm, despite expected ECB rate cuts and softer inflation, supported by upcoming NATO and German fiscal developments.

  • Sterling stays resilient, buoyed by positive housing data and expectations for more BoE rate cuts, with technical upside toward 1.3600.

USD: Risk Sentiment Wobbles Amid Renewed Trade Tensions


Global markets began the week on a cautious note as familiar US-China trade frictions resurface. While the Geneva agreement from last month technically remains intact until 12 August, rhetoric from both Washington and Beijing reveals growing dissatisfaction. President Trump’s social media remarks and critical Chinese state media coverage highlight the growing strain. An early breakdown of the deal could renew pressure on risk assets—and the dollar.

At the same time, the US has intensified its protectionist stance, doubling existing 25% tariffs on steel and aluminium over the weekend. The Commerce Department is also reviewing other sectors—pharma, semiconductors, and aerospace—with possible 25–50% tariffs still on the table.

Adding another layer of pressure is the potential “revenge tax” under Section 899 of Trump’s tax legislation. Aimed at countering ‘discriminatory’ foreign taxes like Europe’s Digital Services Tax, this provision could allow the US to impose up to 20% withholding taxes on income paid to foreign entities. If passed, these taxes could begin in 2026 and would risk a further pullback in foreign investment into the US.

Looking ahead, markets are focused on upcoming US data: job openings on Tuesday, payrolls on Friday, and several business surveys including ISM manufacturing. Fed speakers will also be out in force, and Wednesday brings the Beige Book. Fed Governor Christopher Waller reiterated support for rate cuts during a speech in Asia, aligning with market expectations of 53bp in rate reductions this year. Despite already short speculative positioning, dollar weakness may continue, with the DXY potentially heading toward 98.70 barring a strong ISM surprise.

EUR: Holding Up Despite Dovish ECB


The euro remains well-supported versus the dollar, even as the ECB gears up for a likely rate cut on Thursday and eurozone inflation data is expected to soften. The flash CPI for May (due tomorrow) should show core inflation easing to 2.5% y/y.

Geopolitics could also lend the euro some support. Thursday’s NATO defence ministers’ meeting may shift attention back to rising European defence spending. And later in June, expected announcements around German fiscal stimulus could further bolster euro sentiment. Technically, a break above 1.1425 in EUR/USD could open the path toward 1.1500.

GBP: Resilient in a Soft Dollar Climate


Sterling continues to hold up well, particularly against the dollar. This week’s focus includes commentary from several Bank of England officials—especially at Tuesday’s Treasury Committee meeting. UK house price data released this morning surprised to the upside, suggesting some resilience in the domestic economy even as interest rates decline. The market continues to expect two more 25bp cuts from the BoE this year. If GBP/USD clears 1.3525, a move toward 1.3600 is on the cards.

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.