Trade Concerns Back in the Forefront – Currency Thoughts

Trade Concerns Back in the Forefront

July 4, 2025

Having secured a single broad tax and spending bill, President Trump turned attention back to promised trade tariffs, and once again investors are learning of a sudden policy shift. Instead of a multitude of trade negotiations with complex commodity-specific and varied tariff charges, the president has elected instead to issue letters to each country detailing a single tariff rate to be paid on its exports into the United States. The earlier scheme had proven cumbersome and yielded only a couple of completed deals such as with Britain and Vietnam, and the new plan will be much “easier” to put in place by the self-imposed deadline of July 9.

A tariff war has been a recurring element all year of elevated investor anxiety, and today’s holiday-depleted financial marketplace has reacted in predictable fashion.

• The dollar has eased but only slightly. On this 249th anniversary of the U.S. Declaration of Independence unveiling, the last four digits of the benchmark dollar-euro relationship magically read 1776, as in $1.1776, when I recorded rates early this morning. That represented a 0.2% overnight dollar dip and left the rate in the vicinity of the euro’s birthing value when launched at the start of 1999. A somewhat bigger drop of 0.4% was seen against the yen, while the loss versus the Swiss franc was -0.1%.
• Ten-year sovereign debt yields fell overnight by three basis points in Germany and Spain, two bps in Italy and France, and a single basis point in the U.K.
• European stock markets showed red, led by a 1.6% slump in Spain and including slides of 0.6-0.8% in Germany, France and Italy. In Asia, the South Korean Kospi (-2.0%) took a particularly large hit, but Japan’s Nikkei and China’s Shanghai Composite managed marginal gains. U.S. stock exchanges will be closed, but the S&P has eased about 0.5% in futures trading.
• Friday’s lessening appetite for risk saw Bitcoin and oil prices fell by 0.6% and 0.9%.

On today’s data release scorecard, Japan announced a pleasant surprise, while Germany offered up a clunker. Household spending in Japan recorded the largest year-on-year gain in 33 months in May, a jump of 4.7%, which far exceeded expectations. German factory orders in May relapsed 1.4% on month due to a 7.8% slump in domestic demand.

Also in May, French industrial production fell 0.5% on month and 0.8% on year, while Spanish industrial production went up 0.6% on month and 1.7% on year.

Among the June construction sector purchasing manager indices, only Italy’s index of 50.2 exceeded the 50 threshold that separates positive growth from deterioration, and that reading was below May’s index of 50.5. The June readings in Germany of 44.8 and in France of 41.6 signaled sharp continuing rates of contraction, and so did the 45.2 score for the whole euro area, which was at a3-month low. Not only is the current situation bleak, but future prospects too are viewed quite pessimistically. Meanwhile, the British construction PMI reading was south of 50 for a sixth straight time but, at 48.8, but the smallest margin in that streak.

Retail sales in Italy and the Czech Republic respectively posted monthly declines in May of 0.4% and 0.2% but 12-month increases of 1.3% and 5.3%.

Producer price inflation in the euro area slowed to a 3-month low of 0.3% in May, contrasting with the 23-month high of 3.1% experienced just three months earlier. Slumping energy costs accounted for this volatility Non-energy producer prices went up 0.1% for a third consecutive month.

Consumer sentiment in Spain improved from a 17-month low of 76.5 in April to a 4-month high of 82.3 in May.

Hong Kong’s private purchasing managers index slumped to a 39-month low of 47.9 last month. On a brighter note, retail sales in Singapore rebounded 1.0% in May after stagnating 2.7% over the prior two months, which resulted in the best year-on-year comparison since January.

Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: construction PMIs in the U.K. and euro area, Euroland PPI, German factory orders, Japanese household spending

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on Friday, July 4th, 2025 at 5:40 am and is filed under New Overnight Developments Abroad – Daily Update.
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