The US dollar hit 2-week highs late in yesterday’s session, after Trump announced that a much higher than expected 3.5% tariff rate would apply to all Canadian imports from 1st August, and that the EU would receive a letter by Friday. Trump also raised the prospect of a blanket 15%-20% tariff rate on other countries, which is much higher than the current 10% baseline rate.
The US is Germany’s largest trading partner, and the impact of tariffs is already having a detrimental effect, with exports to the United States dropping by 7.7% in May, following a 10.5% decline in April. Fearing punitive trade tariffs the President of the Federation of German Wholesale, Foreign Trade and Services Dirk Jandura said “We need a fair deal for the whole of Europe. It must not be concluded at any price.” Jandura continued saying that “the situation in foreign trade is dramatic and threatens to get worse. The consequences of Trump's tariff policy are thus becoming ever clearer.”
British pound sterling has dipped after data from earlier this morning revealed that UK GDP unexpectedly contracted by 0.1% in May. This marks back-to-back negative GDP prints, surprising markets that were expecting the economy to have bounced back from the -0.3% fall in April.
*Daily move - against G10 rates at 7:00 am, 11.07.25
** Indicative rates - interbank rates at 7:00 am, 11.07.25
In a welcome break from tariff headlines, markets keenly await next week’s US inflation report, which is expected to show the largest monthly increase since January. If the numbers come in hot, this will give markets a timely reminder that the Fed may well not be able to lower interest rates as much as current pricing suggests. Given the near 7% fall in USD since Trump’s “Liberation Day” there is plenty of room for the currency to bounce back from current levels.
With markets currently pricing-in 6 US rate cuts by the end of next year, market legend Jaimie Dimon shocked markets yesterday stating he “would price-in a 40-50% chance of higher US interest rates”, citing inflation from tariffs, US migration policy and budget deficits.
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