Key Market Insights:

• Dollar's Rise: The U.S. dollar is appreciating.
• Tariff Talk: This strength is linked to concerns about potential new tariffs.
• Trump's Influence: President Trump's statements on trade are a key driver.

Market Recap

A Quiet Friday and Key Central Bank Signals

Last Friday saw limited market activity, largely due to the July 4th celebrations in the U.S. As trading volumes were notably low, attention shifted to comments from central bank officials across the UK and Eurozone.

Bank of England's Dovish Stance:

• Alan Taylor, a member of the Bank of England's Monetary Policy Committee, suggested that interest rate cuts might be necessary as "insurance" against a potential economic downturn. This indicates a leaning towards a more accommodative monetary policy to support the economy.

ECB's Euro-Driven Disinflation:

• Meanwhile, the European Central Bank's (ECB) Villeroy commented on the strengthening Euro, noting its "clear disinflationary effect." He highlighted that a strong euro could lead to inflation undershooting targets, potentially hinting that the ECB may be done with its current cycle of interest rate reductions.

What this means for you:

• The subdued trading environment on Friday underlines how significant holidays can impact market liquidity.
• We're seeing a divergence in central bank commentary: the BoE appears to be considering further easing, while the ECB might be nearing the end of its cutting cycle due to currency strength impacting inflation. These differing outlooks could influence currency movements and investment opportunities in the coming weeks.

Today’s Market Update:

This morning, the U.S. dollar is showing a slight uptick as market sentiment remains cautious, driven by looming tariff concerns.

Trade Landscape:

• A critical tariff deadline is set for July 9th.
• Treasury Secretary Scott Bessant indicated that current communications regarding tariffs aren't the final word, suggesting more clarity is expected soon.
• Adding to the uncertainty, Donald Trump has floated the idea of an additional 10% tariff on countries aligning with "Anti-American policies of BRICS."
• The BRICS nations recently met and collectively criticized Trump's tariff policies.
• The market largely anticipates that new tariffs, potentially at a minimum of 10% for most countries, could take effect from August 1st. We expect to see trade agreements announced before Wednesday's deadline.

Upcoming Economic Data:

• The minutes from the latest Federal Reserve meeting are due. These will offer deeper insights into the Fed's economic outlook and potential shifts in their "dot plot" – a visual representation of policymakers' individual interest rate projections. This could significantly influence expectations for future U.S. monetary policy.
• Looking towards the end of the week, the UK's May GDP figures will be released on Friday. After April's contraction of -0.3%, expectations are for a rebound to 0.1% growth in May. A weaker-than-expected number could further pressure the British Pound, which experienced a shift in sentiment last week.

What This Means for You:

• The immediate focus remains on the developing trade situation and how it unfolds by the July 9th deadline. Keep an eye on any announcements of new trade deals.
• Central bank communications, particularly the Fed's minutes, will be crucial for understanding potential interest rate trajectories in the U.S.
• For UK investors, the upcoming GDP data will provide a key indicator of economic health and could impact the Pound's performance.

7th July 2025

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