Markets kicked off the week on shaky ground after U.S. President Donald Trump reignited trade fears by threatening steep tariffs—25% on Japan, 35% on Canada, and 30% on the European Union and Mexico—if trade deals aren’t finalized by August 1. The aggressive stance unsettled global markets, amplifying risk-off sentiment and sending investors into protective mode.
Geopolitical tensions added further pressure. Israel launched strikes against Yemen’s Houthi militants following an alleged attack in the Red Sea, while the U.S. intensified its push for allies to supply weapons to Ukraine. Adding to the unease, reports from Axios suggested Trump is preparing a major policy shift with an “aggressive” new Ukraine weapons package, potentially including long-range missiles capable of striking deep into Russian territory, well beyond previous defensive limits. Elsewhere, French President Emmanuel Macron delivered a stark warning, calling for a sharp increase in defense spending and declaring that Europe’s freedom is facing its greatest threat since World War II.
Meanwhile, Trump’s ongoing calls for interest rate cuts were largely brushed aside in the Federal Reserve’s latest meeting minutes, with policymakers reaffirming their data-dependent approach. Fed official Austan Goolsbee warned that the new tariffs could delay any potential rate cuts. This came alongside softer U.S. jobless claims and persistent inflation worries, which are being fueled by record-high stock markets, unresolved trade issues, restrictive immigration policies, and the uncertainty around the upcoming budget bill. As a result, expectations for Fed easing cooled further, helping the U.S. Dollar Index snap a two-week losing streak and edge higher on Monday.
In Asia, China’s June trade data came in stronger than expected, with USD-denominated surplus rising thanks to a larger uptick in exports than imports. Bloomberg also forecast that China’s economy likely grew slightly above the government’s annual target in Q2 2025. This upbeat tone raised speculation that Beijing might now pause its aggressive stimulus plans, especially if progress in U.S.-China trade talks continues.
Japan, on the other hand, released mixed economic data and continues to struggle in reaching a trade agreement with Washington. Similarly, the EU, Canada, and other major economies are pushing to avoid U.S. tariffs but have achieved limited success.
In markets, the U.S. Dollar’s strength and deteriorating sentiment pressured major currencies and commodity-linked Antipodeans. Gold retreated after breaching the key resistance-turned-support near $3,340, with a stronger dollar threatening to drag it further below. Crude oil also failed to capitalize on supply risk headlines, slipping amid a firmer greenback and speculation that China could slow its stimulus efforts if growth remains steady.
Still, cryptocurrencies broke away from the pack, delivering another strong performance. Bitcoin surged to a new all-time high near $118,000, and Ethereum jumped to its highest since early February. Equities across the Asia-Pacific region drifted lower, while bond yields climbed, reflecting the market’s increasingly cautious outlook.
The Euro (EUR) continues to lose ground as the U.S. tariff announcement targeting the European Union (EU) intensifies concerns over worsening geopolitical tensions. EURUSD is now down for the fourth consecutive day, touching its lowest level in more than two weeks. The pressure on the euro is compounded by a firm U.S. Dollar and growing market risk aversion.
Similarly, GBPUSD extends its decline into a third straight day, following a sharp drop on Friday. The pair remains weighed down by persistent UK fiscal concerns and broad-based dollar strength, keeping sentiment around the British Pound fragile.
On the other hand, USDJPY holds steady near a three-week high as the Japanese Yen’s traditional safe-haven appeal limits downside, despite ongoing U.S.-Japan trade tensions and mixed signals regarding the Bank of Japan’s (BoJ) rate outlook. Recent data from Japan, including Machinery Orders and Industrial Production, came in mostly positive, adding to the pair’s consolidation around current highs as traders assess the next move.
A wave of caution swept through the markets, pressuring the Australian, New Zealand, and Canadian Dollars, as investors grew wary of China’s mixed stance on further stimulus. Adding to the downside were soft economic indicators from Australia and New Zealand, alongside persistent U.S.-Canada trade tensions.
In New Zealand, the latest Business NZ PSI and Electronic Card Sales offered a mixed view of economic activity, failing to inspire confidence. Meanwhile, Australian Prime Minister Albanese expressed a willingness to strengthen economic ties with China, but the gesture received little positive response from Beijing, further dampening sentiment around the Aussie.
The Canadian Dollar faced additional headwinds as crude oil prices pulled back after a strong two-week rally. With oil being a major Canadian export, the dip weighed heavily on CAD performance, especially amid ongoing tariff concerns.
As a result, AUDUSD snapped its three-week winning streak, while NZDUSD remained under pressure after posting a weekly loss. USDCAD, on the other hand, broke its two-week downtrend and climbed higher early Monday, supported by the stronger U.S. Dollar and weakening sentiment around the Canadian economy.
Despite renewed Middle East tensions, fears of a broader Ukraine-Russia conflict, and whispers of OPEC+ members quietly missing output cut targets—factors that supported a two-week rally in oil, WTI crude slipped early Monday. The pullback came as Trump’s steep tariffs on major economies stoked fears of weakening global energy demand.
Adding further pressure were growing speculations that China may pause its stimulus efforts, especially if upcoming growth and trade data turn out strong. This, combined with a surprise rise in U.S. crude inventories over the past two weeks, dragged prices lower despite the otherwise supportive geopolitical backdrop.
Gold remains steady around $3,355 after breaking through a key short-term resistance zone that included the 21-day SMA and a month-old descending trendline, both of which now serve as immediate support near $3,340. The metal’s sideways movement reflects market caution ahead of this week’s U.S. inflation data and ongoing uncertainty around global trade developments.
Meanwhile, optimism in the crypto space continues to fuel gains, with Bitcoin (BTCUSD) hitting a new all-time high and Ethereum (ETHUSD) climbing to its highest level since February 2. Supporting the bullish momentum is the announcement of “Crypto Week” by the U.S., starting July 14, where lawmakers will discuss three major crypto bills. The move, along with strong institutional buying, has reinforced investor confidence and propelled prices higher.
Looking ahead, Monday brings a light economic calendar, but market sentiment is likely to stay cautious ahead of Tuesday’s key U.S. inflation data and China’s GDP release. Trade tensions—fueled by fresh U.S. tariff announcements—and escalating geopolitical risks may further weigh on investor confidence, favoring traditional safe-havens such as the U.S. Dollar, Japanese Yen, Swiss Franc, and Gold, while pressuring crude oil prices.
That said, any unexpected escalation in geopolitical fears, combined with a pullback in the U.S. Dollar, could support crude oil’s ongoing two-week uptrend—especially if U.S. inventory data shows a surprise draw.
All eyes will remain on the U.S. inflation report, as signs of overheating could give the Federal Reserve more reason to delay rate cuts and provoke political tensions with Trump. This would likely reinforce U.S. Dollar strength while dragging down risk-sensitive assets, including other major currencies, the Antipodeans, and commodities like crude oil.
May the trading luck be with you!
