Global financial markets are seen on edge as US President Donald Trump renewed his threat of new tariffs ahead of a crucial July 9th deadline, despite the recent strong US jobs data.
While US markets were closed for Independence Day, global trading activity slowed, but investor sentiment remained cautious. Concerns over the possibility of unilateral tariff announcements and uncertainty over the Federal Reserve's (Fed) policy direction continued to cast a shadow over the global economic outlook.
US Trade Policy Again Causes Tensions
President Trump hinted that his administration could restart the implementation of new tariffs as early as this week, ahead of the White House's self-imposed July 9th deadline for reaching a bilateral trade deal. He also suggested that trading partners could face new import taxes starting August 1.
Although the implementation of the proposed tariffs in April was previously suspended for 90 days to allow for negotiations, the sudden change in tone highlights just how uncertain US trade policy is at the moment.
Asian countries are at high risk of being hit by new tariffs, especially currencies that rely on global growth such as the Malaysian ringgit and the Singapore dollar.
Safe-haven currencies such as the Japanese yen (JPY) and the Swiss franc (CHF) are expected to be in demand if trade tensions escalate.
The US dollar (USD) is more complex, with the impact likely to strengthen due to inflows into safe-haven assets, but also facing the risk of depreciation if there are retaliations from other countries.
Fed Increasingly Hesitating to Cut Interest Rates
Non-farm payrolls (NFP) data released on Thursday showed new jobs far exceeding expectations, reducing the likelihood that the Fed will cut interest rates in the near future. The chances of a rate cut at the July meeting are now seen as very low, and the chance of a cut in September is also shrinking.
While the Fed has previously been seen as open to easing, the strong performance of the labor market gives the Fed room to remain cautious for now.
USD is expected to remain strong in the near term.
Currency pairs such as EUR/USD and GBP/USD may face pressure.
USD/JPY will continue to be a key indicator of USD market direction, especially if there is no new guidance from the Fed.
Markets Remain Cautious Despite Strong Economy
Although the US economy shows fundamental strength, investors are still hesitant to take full risks as several key factors remain unclear:
Trade risk: It is still unclear which countries will be subject to tariffs and at what rate.
Monetary policy uncertainty: The Fed has yet to give a clear indication of when and how they will act.
As a result, investors have opted for a “wait and see” approach in repositioning their positions. The modest rise in gold prices also shows that investors are still seeking protection from uncertainty.
Key Events to Watch in the Market
EventsDatesImportant to Currency Markets
US tariff deadline July 9 A key turning point for global risk sentiment
Fed follow-up speech (post-holiday) July 8 – 12 New clues after jobs data shock
CPI & PPI inflation data (June) Next week Key determinants of Fed interest rate direction
Global trade talks continue Any progress or failure will have a direct impact on JPY and AUD
Conclusion
While Americans are celebrating Independence Day, global markets continue to closely monitor the development of the trade war and the direction of Fed monetary policy.
The strong jobs data provided some relief to investors, but President Trump’s tariff threats have once again added uncertainty to the global economic outlook and financial markets.
SARACEN MARKETS maintains a cautiously optimistic view and acknowledges the resilience of the US economy, while not ruling out the potential for new uncertainties that could arise at any time due to trade policy and geopolitics.
Maintain a flexible strategy.
Focus on currencies that are sensitive to trade, interest rates and global tensions.
Be prepared to react quickly based on new data and policy statements.
