​​​​​​​Global Markets Rattled by Tariff Threats and Dollar Weakness |  Weekly Market Analysis

Key events this week:

Monday, May 26, 2025

• USA - Memorial Day

Tuesday, May 27, 2025

• USA - Durable Goods Orders (MoM) (Apr)
• USA - CB Consumer Confidence (May)

Wednesday, May 28, 2025

• New Zealand - RBNZ Interest Rate Decision
• USA - FOMC Meeting Minutes

Thursday, May 29, 2025

• USA - GDP (QoQ) (Q1)
• USA - Initial Jobless Claims
• USA - Crude Oil Inventories

Friday, May 30, 2025

• USA - Core PCE Price Index (YoY) (Apr)
• USA - Core PCE Price Index (MoM) (Apr)
• USA - Chicago PMI (May)

Markets finished the week on a jittery note as trade tensions resurfaced, with US President Donald Trump’s new tariff proposals shaking investor confidence. The S&P 500 managed to pare some losses but still closed in negative territory. Equities remained under pressure after Trump announced plans to impose a steep 50% tariff on goods imported from the European Union starting June 1, reigniting fears of a renewed trade war.

The tech-heavy NASDAQ Composite slid 1%, while the Dow Jones Industrial Average lost 256 points, or 0.6%. The S&P 500 shed 0.7%.

Trump’s latest move marks a significant escalation, as he took to his Truth Social platform to accuse the EU of being unfair in trade dealings, stating that it was “formed for the primary purpose of taking advantage of the United States.” He emphasized that negotiations were going nowhere and that more decisive action was necessary. The administration had already imposed tariffs earlier in the year - 25% on EU cars, steel, and aluminum in March, and 20% on a wider range of goods in April. That 20% rate had been temporarily reduced to 10% until July 8, giving both sides a 90-day window to reach an agreement.

In a surprise move targeting corporate America, Trump also posted that Apple should face tariffs unless it manufactures iPhones domestically. Specifically, he demanded that all iPhones sold in the US be made within its borders or be subjected to a 25% duty. This is the first instance this year of a US company being singled out in his trade strategy, adding uncertainty for investors already wary of geopolitical risks.

On the currency front, the Australian Dollar gained strength against the US Dollar, reaching levels not seen in six months. This appreciation came despite the Reserve Bank of Australia’s dovish outlook, especially after a 25-basis point rate cut last week. Governor Michele Bullock noted that the RBA would consider additional easing measures if the economic picture deteriorates, indicating the door remains open for more cuts. However, optimism surrounding US-China trade relations, particularly the extension of a 90-day truce, gave the Aussie Dollar some much-needed tailwind. As China remains Australia’s largest trading partner, any improvement in US-China ties tends to reflect positively on the Australian currency.

Meanwhile, the Japanese Yen reached a monthly high against the US Dollar. Investors sought the safe-haven appeal of the Yen amid persistent geopolitical uncertainties and increasing expectations that the Bank of Japan will continue raising interest rates. The prospects of a successful trade pact between Japan and the US also contributed to the momentum of the Yen. Additionally, unresolved tensions from the Russia-Ukraine conflict and ongoing strife in the Middle East have pushed risk-averse investors toward safer assets like the Yen.

The Canadian Dollar also posted gains, driving the USD/CAD pair below the key 1.3700 level to its lowest point since October 2024. A broad-based decline in the US Dollar, coupled with domestic data surprises, helped the Loonie rise. Canada’s hotter-than-expected core inflation figures reduced expectations for a rate cut by the Bank of Canada in the near term. Although oil prices softened slightly, the data boosted confidence in the CAD, outweighing the usual correlation between oil prices and the commodity-linked currency.

The US Dollar Index, which measures the greenback against a basket of major currencies, fell to its lowest in nearly a month. This decline comes as concerns mount over the US fiscal trajectory, particularly with Trump's proposed legislation - a sweeping tax cut and spending package - that could add an estimated $4 trillion to the national deficit over the next decade. This would substantially increase federal debt and potentially exert long-term pressure on Treasury yields.

Adding to the Dollar’s weakness were signs of easing inflation. Recent US Consumer Price Index and Producer Price Index readings came in softer than expected, reinforcing the market’s view that the Federal Reserve may resume rate cuts before the end of the year. These dovish expectations have weighed heavily on the Dollar, offering room for gains in other major currencies.

The Euro extended its rally into a second straight session, trading near the 1.1390 mark during the Asian session on Monday. Bloomberg reported that President Trump had agreed to delay the implementation of the 50% tariffs on EU goods until July 9, giving negotiators some breathing room. In response, European Commission President Ursula von der Leyen expressed readiness for swift engagement but also highlighted the need for more time to finalize an agreement. The US market closure for Memorial Day also contributed to reduced liquidity, amplifying currency fluctuations.

The British Pound joined the list of outperformers, climbing past 1.3550 to reach levels last seen in February 2022. The rally was driven by strong UK retail sales data released last Friday, which indicated resilient consumer spending despite an uncertain macroeconomic backdrop. The better-than-expected inflation figures for April have fueled expectations that the Bank of England may hold off on rate cuts at its June 18 meeting. This belief has provided additional upward momentum for GBP, especially as other central banks shift toward more dovish stances.

Looking ahead, investor attention will turn to key US economic data due later in the week. Wednesday will bring Durable Goods Orders, followed by Thursday’s Preliminary GDP data and Friday’s Core PCE Price Index - the Fed’s preferred inflation gauge. Additionally, the Federal Reserve’s minutes from its latest policy meeting are set for release Wednesday and could offer crucial insights into the central bank’s policy trajectory. Markets will also be watching Tokyo’s Consumer Price Index data on Friday, which could further influence currency sentiment, especially in JPY trading.

In sum, global markets remain deeply sensitive to policy shifts and geopolitical events. Trump’s aggressive tariff stance has reintroduced a layer of uncertainty that markets had temporarily set aside. Currency markets are responding accordingly, with the US Dollar under widespread pressure as economic data and policy expectations evolve. Investors will need to remain agile and informed as events unfold throughout the week.