Waiting for a Clarifying Ruling of U.S. Tariff Policy and This Month’s Fed Interest Rate Decision – Currency Thoughts
Waiting for a Clarifying Ruling of U.S. Tariff Policy and This Month’s Fed Interest Rate Decision
September 4, 2025
U.S. President Trump has asked the Supreme Court to rule very quickly and overturn the recent Court of Appeals for the Federal Circuit that much of his tariff policy changes had overstepped his authority. Tariff hikes are central to the president’s foreign policy and as a generator of vast federal revenues that he promises will contain the upward impact on the federal deficit from the big, beautiful tax and spending bill that Congress approved this past summer.
Signs of a weakening U.S. labor market have encouraged markets to place bigger odds on a resumption of Federal Reserve interest rate cutting when the FOMC meets September 16-17. The latest Fed Beige Book of regional economic conditions released yesterday afternoon depicted only modest economic activity and a flattening labor market. Today, market participants are digesting the August Challenger report that showed increased job cuts and the ADP estimate that private sector employment last month only advanced 54K.
Other U.S. data reports today revised second-quarter labor productivity growth from 2.4% estimated earlier to 3.3% and unit labor cost growth last quarter from an earlier estimate of 1.6% down to a now estimated 1.0%. Compared to a year earlier, productivity grew 1.5%, while unit labor costs went up 2.5% in the second quarter. The U.S. trade deficit of $78.31 billion in July was a tad greater than forecast and 32.5% wider than June’s deficit as import growth of 5.9% far exceeded the measly 09.3% uptick in imports. In contrast to the president’s high priority on eliminating the trade deficit, the January-July imbalance of $654 billion roughly 30% wider than a year earlier.
Uncertainties on the fate of tariffs, upcoming Fed policy and even whether the central bank will retain any semblance of independence going forward dampened movements in the dollar overnight to an uptick in the greenback of 0.2% versus the Canadian dollar and just 0.1% relative to the euro, yen and Swiss franc. Sterling is unchanged. Ten-year sovereign debt yields have eased back not only in the United States (-4 basis points today) but by that same amount as well in Japan, France, Italy and Spain and by three basis points in Germany. Bitcoin’s price dropped 0.6% overnight, while gold broke fell 0.9% but is remaining above $3600 per ounce. Oil dropped 1%.
Key Pacific Rim stock markets closed up 1.5% in Japan, 1.0% in Australia and 0.5% in South Korea but down 1.3% in China, 1.1% in Hong Kong and 0.2% in Indonesia. European share prices are mostly up somewhat, with the understandable exception of the Paris CAC in view of next week’s vote of confidence on parliament. The DOW is flat in futures trading, but other key stock indices are flashing green to a modest extent.
The Central Bank of Malaysia’s key interest rate, which had been sliced by 25 basis points in July, was left unchanged as expected at 2.75%. The rate had been at 3.0% May 2023 until the reduction this past July. A released statement cautions that “downside risks remain, albeit to a lesser degree arising from potentially higher tariffs, especially product-specific ones, and escalations in geopolitical tensions. These lingering uncertainties could lead to greater volatility in the global financial markets and commodity prices.” Domestic economic trends are in a good place with year-to-date inflation averaging 1.4%, and economic growth somewhat above 4.0%.
Remarks by the Governor of the Reserve Bank of Australia suggest that interest rate cuts may not be forthcoming as quickly as market participants had been expecting coming into September. Australia’s trade surplus in July spiked to a 17-month high of A$ 7.31 billion, and the household spending in the country posted the largest year-on-year rise (5.1% in July) in 20 months.
Ireland’s current account surplus in the first half of 2025 (EUR 25.3 billion) was considerably smaller than the EUR 53.1 billion surplus a year earlier. Irish GDP soared 12.1% between the second quarters of 2024 and 2025.
Retail sales volume in the euro area dropped 0.5% in July, trimming their year-on-year growth from a 38-month high in June of 3.5% to 2.2% in the following month. The Euroland construction sector purchasing managers index rose two index points in August to a 30-month high but at 46.7 remained well below the neutral level of 50. Among the three major economies using the euro, the contraction PMI scores last month were a 2-month low of 46.0 in Germany, a 19-month high of 46.7 in France and a one-year Italian low of 47.7.
The British construction purchasing managers index also printed below 50 in August at a 2-month high of 45.5 but conveying a solid pace of deterioration.
Swiss consumer prices dipped 0.1% in August and matched July’s 12-month 0.2% rate of increase. Inflation a year earlier had a reading of 1.1%, and the prior cyclical peak of 3.5% occurred three years ago in August 2022.
In Sweden, consumer prices fell 0.4% on month in August but accelerated 0.3 percentage points to 1.1% year on year. Core CPI of 3.3% represents a 14-month high. Overall and core inflation peaked in the final 2022 month at 12.3% and 10.2%, respectively.
Armenian CPI inflation, which swung from 12.3% in mid-2022 to -1.7% in February 2024, rose to a 2-month high of 3.6% last month.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Bank of Malaysia, Euroland retail sales and construction PMI, Swiss CPI
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