Tariff Turbulence: Markets Brace for Trade Deadline Drama.

  • Tariff Watch: A 90-day trade reprieve expires Wednesday—markets await clarity on whether new tariffs hit or extensions are granted, especially for the EU and Asia.

  • Dollar Dynamics: USD downside appears limited despite tariff uncertainty, with recent macro data and yield moves providing mild support.

  • Euro Focus: EUR/USD is unlikely to see a breakout; intra-EU political division on trade tactics adds complexity, though stimulus news from Germany could be supportive longer term.

  • Sterling Stagnation: GBP remains pressured by expectations of higher UK taxes and policy divergence, with limited upside from upcoming GDP data.

  • Oil Outlook: OPEC+’s decision to raise supply may push Brent toward $60—supporting global growth and aiding energy importers in Europe and Asia.

USD: Market Calm Before a Trade Storm?
Foreign exchange markets have started the week quietly, but trade tensions are simmering beneath the surface. Wednesday marks the end of a 90-day pause on the so-called “Liberation Day” tariffs. Since April, FX volatility has been subdued as the U.S. has leaned more toward deal-making than aggressive tariff hikes. So where do we stand? Deals are in place with the UK and Vietnam. There’s a truce with China. For others, we await news—will there be last-minute agreements, steeper tariffs, or another extension? All options remain on the table. The spotlight this week will likely be on big trading partners like the EU and Asia, where imbalances are largest.

Talk of reinstating 50% tariffs could disrupt today’s risk-friendly mood, but with markets already underweight USD, the downside for the dollar may be limited. Additionally, recent U.S. data has modestly supported the greenback. U.S. yields have held steady after rising 10–12bps, suggesting the Fed may not rush to cut rates in July.

Beyond trade, it’s a relatively quiet week for U.S. economic data. Attention could turn to the June Fed meeting minutes. Meanwhile, in the energy space, OPEC+ has agreed to a higher-than-expected output increase, keeping crude prices subdued. Analysts see Brent sliding to $60/barrel later this year—good news for growth and energy importers in Europe and Asia.

DXY has found support near 96.50, and this week could see some sideways movement.

EUR: Tariff Warnings vs Market Realism
Markets wouldn’t be shocked to hear renewed threats from Washington about imposing 50% tariffs on the EU, possibly framed in dramatic terms like, “there is nothing they can do to avoid these tariffs.” Still, investors have learned to discount such rhetoric, and EUR/USD would likely find buyers on any knee-jerk dip.

Within the EU, there’s division: Germany and its auto-linked neighbors want a swift resolution, while France and Spain prefer a firmer stance with possible retaliation. Rumors of a two-month extension to strike a deal seem plausible.

Key sectors under negotiation include 50% tariffs on steel and aluminum, 25% on cars, and protection of pharma exports—vital for Ireland. U.S. progress on a pharma deal with Switzerland last week lifted healthcare stocks and may bode well for the EU.

A sharp EUR/USD rally isn’t likely based on this week’s developments. Even if Washington misjudges the mood, and equity markets drop, a break above 1.1900–1.1910 seems unlikely. A range-bound move between 1.1700 and 1.1830 is more realistic for now.

Eurozone data is light this week, but political developments matter. Germany’s upper house is expected to pass nearly EUR50bn in fiscal stimulus on Friday, a long-term positive for domestic demand and the euro.

GBP: Sterling Still Struggling to Find Its Footing
EUR/GBP remains well supported despite easing tensions in the UK Gilt market. The market fallout from last week’s U-turn on welfare reform has evolved: the consensus now is that tax hikes will be necessary in November. The pound’s weakness has shifted from being about sovereign risk to a more traditional story of tighter fiscal and looser monetary policy.

Friday’s monthly GDP figures might offer sterling some relief, but we expect 0.8600 to act as a near-term support level in EUR/GBP.

*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.