Trade Wars Escalate: Dollar Up, Markets Brace for CPI

The EUR/USD remained under pressure on Monday, trading below the 1.1700 mark as the U.S. dollar strengthens following fresh tariff announcements from President Donald Trump.

Over the weekend, President Trump announced new tariffs of 30% targeting the European Union and Mexico—two of the United States' largest trade partners. The move initially rattled investor sentiment and increased demand for safe-haven assets. However, market reaction has since moderated amid speculation that Washington may reconsider or soften its stance on the new measures.

Attention now shifts to key U.S. economic data, including June’s Consumer Price Index (CPI), upcoming speeches from Federal Reserve officials, and Retail Sales figures. Inflation data, in particular, could shape market expectations for the Fed’s next move.

Headline CPI is projected to rise to 2.7% year-over-year in June, up from 2.4%, while Core CPI is expected to increase from 2.8% to 3.0%—remaining significantly above the Fed’s 2% target.

Cleveland Fed President Beth Hammack reinforced the central bank’s hawkish tone, stating that the economy remains resilient. She added that while inflation is trending downward, it is still too high, and emphasized her open-minded stance ahead of the July policy meeting.

Across the Atlantic, the European Union has responded to Washington’s tariff move by extending its suspension of retaliatory duties against the U.S. until early August. The EU said the move is intended to keep diplomatic channels open.

This week’s European economic calendar features key releases including May Industrial Production data, the ZEW Economic Sentiment Survey for July, and the Harmonized Index of Consumer Prices (HICP) for June.

Bitcoin retreated sharply in early Asian trading on Tuesday, falling from its record high near $123,000 as traders booked profits and turned cautious ahead of a critical U.S. inflation report due later today.

The world’s largest cryptocurrency had earlier touched an intraday high of $123,317.3 on Monday, buoyed by optimism surrounding U.S. regulatory developments and continued institutional inflows.

The rally coincided with the start of "Crypto Week" in the U.S. Congress on July 14, where lawmakers are expected to discuss pivotal legislation impacting the digital asset space. These include the GENIUS Act, the CLARITY Act, and the Anti-CBDC Surveillance State Act — all aimed at providing greater regulatory clarity around stablecoins and token classification.

Anticipation around these legislative developments has fueled investor confidence and helped drive cryptocurrencies to fresh highs in recent sessions.

Investors are now turning their attention to the June U.S. Consumer Price Index (CPI) report, due later Tuesday. The data is expected to show a modest increase in inflation, a development that could influence the Federal Reserve’s interest rate outlook and impact broader risk sentiment across markets, including crypto.

Further weighing on sentiment, President Trump has renewed tariff threats ahead of his August 1 deadline, creating additional uncertainty for investors.

Crude oil prices fell more than $1 per barrel on Monday as traders digested fresh geopolitical tensions sparked by U.S. President Donald Trump's new threats of sanctions on buyers of Russian oil. The decline came amid lingering concerns over potential U.S. tariffs and uncertainty surrounding the broader impact on global supply chains.

President Trump on Monday announced additional military aid for Ukraine and warned that sanctions could soon be imposed on countries purchasing Russian oil unless Moscow agrees to a peace agreement within 50 days.

Oil prices initially rallied on expectations that Washington would escalate sanctions against Russian exports. However, gains were reversed as traders assessed the likelihood and timing of such measures actually being enforced.

China and India, key buyers of Russian crude, would be among the most impacted by any new sanctions. However, market analysts remain skeptical that the U.S. will follow through with aggressive trade actions, particularly toward China.

Still, Trump’s broader tariff threats remain a key concern for markets. The European Union and South Korea are actively negotiating trade pacts with the U.S. aimed at softening the blow from new duties set to take effect as early as August 1.

Amid the geopolitical uncertainty, data from China offered some support to oil prices. China’s crude imports rose 7.4% year-over-year in June to 12.14 million barrels per day, the highest level since August 2023, according to customs figures released Monday.

Meanwhile, the International Energy Agency (IEA) warned that while short-term supply may appear tight, it expects a surplus to emerge later this year.

U.S. stocks ended slightly higher on Monday, as investors largely brushed off fresh tariff threats from President Donald Trump and adopted a wait-and-see stance ahead of key economic reports and the kickoff of second-quarter earnings season.

Market participants showed limited reaction to Trump’s latest trade salvo, which included a pledge to impose 30% tariffs on most goods imported from the European Union and Mexico starting August 1. The EU extended its pause on retaliatory measures into early August, holding out for a last-minute deal.

Talks between the U.S., EU, Canada, and Mexico are ongoing, the White House said, although investors appear to be growing desensitized to Trump’s frequent threats and reversals.

Investors are holding steady ahead of a packed week that includes new inflation data and key earnings releases.

Second-quarter earnings season kicks off today, with major U.S. banks set to report. Also today, the June Consumer Price Index (CPI) will be released, offering the first glimpse into whether companies are beginning to pass tariff costs on to consumers.

Producer price and import cost data due Wednesday will provide further insight into inflationary pressures and the resilience of supply chains under Trump’s evolving trade policy.