Global markets began the week on a firmer footing after President Donald Trump temporarily deferred the implementation of newly announced tariffs, signalling an openness to further negotiations. The delay, alongside ongoing bilateral trade talks, has eased short term uncertainty, allowing risk sentiment to improve moderately.
The US dollar weakened slightly, while the euro advanced amid reports of a draft trade framework between the US and the European Union. However, caution persists as the July 9 deadline for reciprocal levies approaches, and the final scope of trade exemptions remains unknown.
Trade Policy: De-escalation with Strings Attached
Late Monday, President Trump confirmed that increased tariff duties would be postponed until at least August 1, offering a temporary reprieve to global markets. This decision follows the release of initial tariff letters and comes just two days ahead of a self-imposed July 9 deadline for finalising trade agreements.
- EU Negotiations: Politico reports indicate the US has offered a 10% baseline tariff framework with possible sector-specific exemptions. A successful agreement could set a precedent for future bilateral trade deals.
- China and Others: Framework agreements with China, the United Kingdom, and Vietnam highlight a bifurcated US strategy aggressive posturing followed by targeted diplomacy.
Implications:
- The euro stands to benefit should a formalised EU-US deal materialise, particularly if the scope of exemptions is favourable.
- USD remains vulnerable to continued tariff uncertainty and market perceptions of asymmetric downside risks to US growth.
Market Conditions and Investor Sentiment
Despite new tariff threats, investors appear to be pricing in a familiar pattern of initial escalation followed by tactical retreat. This dynamic, now more widely recognised, has reduced the immediate impact of geopolitical headlines.
Implications:
- Risk-sensitive currencies (e.g., AUD) may experience near-term strength as risk appetite recovers.
- USD’s weakening trend may persist in the absence of significant macroeconomic surprises that reprice Federal Reserve expectations.
Key Developments to Monitor
Event |
Expected FX Impact |
|---|---|
July 9 Tariff Deadline |
Delayed implementation reduces immediate risk; scope of exemptions still key. |
US Inflation & CPI Data (July 11) |
A stronger print could stabilise USD by reducing near-term Fed easing odds. |
ECB-US Trade Deal Outcome |
Positive resolution likely to support EUR strength versus USD and JPY. |
Fed Communication (Ongoing) |
Any shift in tone will shape USD trajectory and rate expectations. |
Strategic FX Outlook
- EUR/USD: Bullish bias on potential trade deal announcement; long positions favoured on dips.
- USD/JPY: Consolidation likely; geopolitical tailwinds fading but Fed clarity lacking.
- AUD/USD: Monitor China-related headlines; gains possible if global risk sentiment remains intact.
Conclusion
With tariff deadlines extended and diplomacy continuing, FX markets are regaining composure. While headline risks remain, investors are displaying increasing resilience and pricing in a less binary policy outcome. The coming days especially any material news around US-EU talks and the July 9 deadline will be pivotal in shaping short-term FX direction.
SARACEN MARKETS maintains a cautiously constructive outlook, with near-term positioning favouring selective dollar shorts and relative strength in currencies backed by improving trade clarity.