Written by the Market Insights Team
Another whirlwind week in US trade policy
Kevin Ford – FX & Macro Strategist
Markets were caught off guard by President Trump’s latest tariff threats aimed at Europe and Apple, but by Sunday, he agreed to push the deadline to July 9 after speaking with European Commission President Ursula von der Leyen. Then, the US Court of International Trade ruled his tariffs illegal—impacting fentanyl, immigration-related tariffs (10%–30%) on imports from China, Canada, and Mexico, as well as global trade surplus tariffs (10%+). Hours later, a federal appeals court hit pause on that ruling, likely sending the case to the Supreme Court to determine the legality of IEEPA-based tariffs.
This renewed uncertainty sent the dollar lower, compounded by weaker-than-expected US economic data. Pending home sales missed expectations, and continuing jobless claims hit their highest level since 2021, suggesting it’s taking longer for people to find jobs.
The dollar initially spiked in Asian trading after the trade court’s ruling but lost momentum during the American session, slipping against all G10 peers, most notably the euro and Nordic currencies.
While this might be just the beginning of yet another chapter in the US trade policy, the turbulence is further chipping away at confidence in the broader US economic outlook. Positioning remains bearish on the dollar over the next three months, as reflected in 3-month risk reversals.
Euro’s upside momentum wanes
Antonio Ruggiero – FX & Macro Strategist
The euro rally has lost some momentum, with EUR/USD down 0.1% month-to-date, and hedge funds trimming their top-side exposure – effectively scaling back the most aggressive bullish bets on the pair. Despite this pullback, ongoing uncertainties in Washington continue to favor the euro, the latest being a federal appeals court’s temporary stay on a ruling regarding Trump’s global tariffs, adding another layer of complexity to the trade dispute. Further boosting the euro, Thursday’s disappointing US jobless claims and GDP figures helped the currency close yesterday’s session higher.
Despite legal turbulence, trade negotiations remain active behind the scenes. The US administration has accelerated discussions with the EU, with Brussels proposing a “zero-for-zero” tariff arrangement on industrial goods, including automobiles. The EU is also open to increasing imports of US products such as soybeans, liquefied natural gas, and defense equipment. Meanwhile, Trump is pushing for revisions to non-tariff barriers, including food safety regulations and digital services taxes, which his administration considers obstacles to fair trade. While the exact contours of a deal remain unclear, both sides appear eager to make progress.
The impact of a potential agreement on EUR/USD price action remains uncertain. On one hand, reduced trade barriers and increased demand for European goods could support the euro. On the other, a reassessment of US growth prospects and decreased uncertainty could remove additional risk premium from the dollar, forcing the euro to realign with its rate differentials—potentially weighing on the currency.
Sterling’s winning streak faces summer test
George Vessey – Lead FX & Macro Strategist
Sterling is on track for its fourth monthly rise on the trot versus the US dollar, its longest monthly winning streak in over two years with a cumulative gain of over 10%. Historically, GBP/USD has suffered a down month following such an aggressive move higher. But we note that June exhibits no meaningful seasonality trend and with dollar demand tepid amidst ongoing uncertainty regarding the US trade story and fiscal policy stability – the pound could extend higher into the summer.
Our upside scenario of $1.40 before year-end assumes the “sell America” trade continues, supported not just by the erosion of confidence in US policy making but also by deteriorating US economic data. Moreover, such an uplift would require a resilient UK economy and more hawkish signals from the Bank of England, hence inflation data will be crucial. In the very near term though, month-end flows could create some temporary selling pressure for sterling, given its strong month-to-date performance across both an aggregate and cross-border basis.
When it comes to GBP/EUR, although the pair has pulled back by about a cent from this week’s highs following the increase in FX volatility in the wake of renewed tariff uncertainty, the pair is likely to snap a 2-month losing streak which at one point saw the pair drop to an 18-month low near €1.14. Now the pound is perched closer to “fair value” versus the euro as indicated by UK-German rate differentials and it also sits around 2% higher than its 5-year average.
Dollar’s rebound loses steam
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: May 26-30
All times are in BST
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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