U.S. stock index futures began the week on a clear decline after the administration of President Donald Trump imposed new tariffs of 30% on imports from Mexico and the European Union. This move reignited trade tensions, prompting investors to reduce their exposure to high risk assets at a time when markets are already cautious amid uncertainty surrounding monetary policy directions.
From a technical perspective, the Dow Jones, Nasdaq, and S&P 500 indices have been trading within a sideways to lower range, failing to break past recent highs. The ongoing pressure on futures increases the likelihood of a short term corrective move, especially if key support levels are breached. The quarterly earnings results from major banks this week are expected to be a significant driver, potentially determining whether markets see a rebound or deeper declines.
The new tariffs come at a particularly sensitive time, coinciding with market anticipation for U.S. inflation data for June. These figures are closely watched, not only as a gauge of price trends but also as a decisive factor in shaping upcoming monetary policy decisions. Any surprise jump in core inflation may limit the Federal Reserve’s flexibility and keep it in a hawkish stance.
Despite growing political pressure from the White House to push for interest rate cuts, the Federal Reserve remains committed to a data-driven approach, resisting political rhetoric. Tariffs are increasingly viewed as inflationary rather than deflationary, reinforcing the Fed’s cautious stance in taking easing measures without clear economic signals.
The U.S. Dollar Index rose by 0.6% this week, supported by increased demand for the greenback as a safe-haven asset following tariff escalations against Canada. The USD/CAD pair saw sharp fluctuations, climbing to 1.3699 after falling more than 0.5% during the Asian session, reflecting the volatility triggered by political developments.
On the data front, domestic indicators have yet to support an imminent rate cut. Jobless claims have continued to decline for a fifth consecutive week, reinforcing the view that the labor market remains resilient. As a result, attention is shifting entirely to the upcoming inflation report, which could set the tone for the Fed’s policy outlook in Q3.
The euro slipped to 1.1685 against the dollar, pressured by a combination of political and economic concerns. Fears that Europe might be next in line for U.S. tariffs have added to the uncertainty, especially after mixed inflation data from France and Germany. Slowing German inflation, in particular, strengthens expectations that the European Central Bank may opt for rate cuts in upcoming meetings to support the fragile recovery.
Meanwhile, the British pound continued its decline, falling to 1.3532 following a second consecutive monthly contraction in U.K. GDP. This performance has revived concerns of a technical recession in the U.K. economy and has placed mounting pressure on the Bank of England to accelerate rate cuts. Labor market data due next week is expected to play a critical role in determining whether a near term policy shift is warranted.
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