The US dollar is ending the week a touch stronger as President Trump continues to ratchet up his tariff threats again and US interest rate expectations edge higher. As widely expected, the 9th July deadline for the “pause” on the US’ reciprocal tariffs was extended. But the gradual publication of new demands and threats of higher tariff rates against Brazil and Canada – based on new rationales not directly related to economic concerns – calls into question the widespread assumption that Trump will ultimately not follow through on most of his threats. This puts renewed focus on negotiations with the EU and China, which carry the most weight in terms of the potential impact on the global economy. The June US inflation figures released next Tuesday is the other key flashpoint coming up. We expect the impact of tariffs to start to show up, driving core inflation back to 3% and strengthening the case for the FOMC to hold off on rate cuts and supporting the dollar.
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