Market Recap:
As China and the US trade accusations of tariff violations, the spectre of a global trade war is again spooking investors and markets
Last week President Trump imposed and then delayed a 50% tariff on all imports from the EU. This week he accused China of violating the tariff truce agreed on 12 May. On Monday, China made the same accusation of the US. As we head into June, markets are already nervous about the return of trade tensions between the world’s two leading economic superpowers.
Currency markets could move quickly if Trump reimposes tariffs on China, or if talks between the sides break down. His erratic approach to trade levies was reinforced on Friday when he used a speech to supporters to double tariffs on all steel imports to 50%.
Currency markets remain volatile: The euro ended the month strongly and remains up over 10% against the dollar so far in 2025. The pound ended the month near to its three year high against the greenback, as dollar volatility continued. The euro has weakened by nearly 1% against the pound in the past year.
Coming Up:
The coming week promises to be a lively one with all eyes again on the US/China tariff situation. But there is also a slew of economic data expected from the US this week, any of which could cause exchange rate fluctuations. Most notably, the important US jobs report (Friday) and ISM PMI surveys for both manufacturing (Monday) and services (Wednesday) will land in the next few days.
Eurozone interest rates – cut expected: In Europe, the European Central Bank will announce its next interest rate decision on Thursday, and is widely expected to cut its main interest rate by 25 basis points. Inflation in the euro area is forecast to fall to 2.1%, the lowest level since 2024. Low interest rates often weaken currency as investors look for better returns elsewhere, though markets will also factor in the wider economic picture.
It will be a quieter week in the UK, with Friday’s house price data perhaps the most important indicator. Politicians will make efforts this week to nail down the timeline for exempting the UK from the 50% US steel tariffs announced on Friday, in line with the trade deal agreed between the two nations earlier in May.
