Euro Slides as Trump Threatens 30% Tariffs on EU and Mexico

Dollar strengthens while markets remain cautious ahead of US inflation and China GDP data

Trump’s Tariff Threat Shakes Currency Markets

The euro slipped to a three-week low on Monday after US President Donald Trump threatened to impose 30% tariffs on imports from the European Union and Mexico, effective 1 August.

The announcement, posted on Trump’s Truth Social platform via letters to EU President Ursula von der Leyen and Mexican President Claudia Sheinbaum, prompted both regions to label the move as unfair and disruptive.

The EU stated it would extend its suspension of counter-tariffs until early August in a bid to maintain diplomatic negotiations.

Market Reactions: Limited but Noticeable

Despite the bold trade move, currency market reactions were relatively muted in early Asian trading:

• Euro fell to $1.1676, down 0.13%
• US dollar rose against the Mexican peso, up 0.28% to 18.6763
• Sterling dropped 0.15% to $1.3470
• Japanese yen rose slightly to 147.31 per dollar
• Australian dollar dipped 0.12%
• New Zealand dollar slipped 0.37%

Analysts suggest that markets are becoming desensitised to Trump’s frequent tariff threats.

“It seems like financial markets have become insensitive to President Trump's tariff threats now,” said Carol Kong of Commonwealth Bank of Australia. “Markets might view this as a negotiation tactic rather than a certainty.”

Dollar Strengthens as Traders Eye Fed Moves

The US dollar’s strength is also being underpinned by anticipation of upcoming inflation data (due Tuesday) and renewed political pressure from Trump on the Federal Reserve.

On Sunday, Trump remarked it would be a “great thing” if Fed Chair Jerome Powell stepped down, reigniting concerns over the central bank’s independence. He also repeated calls for lower interest rates.

Markets are currently pricing in over 50 basis points of Fed rate cuts by December, hinging on this week’s inflation data.

Bitcoin Hits Record Amid Global Uncertainty

Meanwhile, Bitcoin surged past $122,000, reaching a fresh record as investors seek alternatives amid global trade tensions and await regulatory clarity from the US.

• Bitcoin last traded at $122,248.59 (+2.6%)
• Ethereum climbed 2% to $3,052

This crypto rally reflects growing belief in policy wins during this week's Crypto Week in Washington.

China Trade Data Improves but Yuan Steady

China’s June data showed a rebound in exports and imports, suggesting firms are rushing shipments ahead of a potential tariff crackdown. However, this had little effect on the yuan, which held steady:

• Onshore yuan: 7.1706 per dollar
• Offshore yuan: 7.1710 per dollar

Investors await China’s Q2 GDP report for clearer signals on economic momentum, with forecasts pointing to a slowdown due to US trade pressure and weak inflation.

What This Means for Investors

Short-Term Caution

Currency traders should be alert to further volatility if tariff threats escalate or diplomatic negotiations falter.

Dollar Strength Likely to Persist

With inflation data looming and Trump criticising the Fed, the dollar may continue to gain, particularly if economic data supports a wait-and-see approach by the central bank.

Euro and Peso Vulnerability

The euro and Mexican peso remain exposed to political risk. Unless clear trade resolution emerges, expect continued downside pressure.

Sources: (Reuters.com)