The USD rises against EUR, JPY, and GBP at the start of the US session. The EURUSD has stabilised after initial fluctuations, while the GBPUSD falls by -0.44% due to weaker UK economic data for May. The UK GDP Estimate dipped by -0.1%, missing a forecasted +0.1%, albeit better than April’s -0.3%.
UK Manufacturing Impact
UK Manufacturing Output declined by -1.0%, lower than both expectations and previous figures, affecting GBPUSD. The USDJPY sees a rise of 0.47%. The Trump administration imposes tariffs of 35% on Canada, causing the USDCAD to spike initially before settling. Canada plans to continue defending its interests as trade talks proceed.
Canada remains committed to co-operation with the US regarding joint projects. Vietnam is caught off-guard by tariffs at 20% and 40% on transhipped goods, having anticipated lower rates. Trump’s forthcoming letter raises questions about potential tariffs on the EU.
Fed President Austan Goolsbee cautioned against rate cuts, highlighting concerns over increased uncertainty post-April tariffs. He noted no substantial inflation uptick from tariffs but acknowledged Midwest business concerns. ECB’s Isabel Schnabel confirms a high barrier for further easing, maintaining a resilient eurozone economy.
ECB and US Market Reactions
Markets anticipate ECB rate stability over summer, with limited chances of cuts in upcoming months. ECB’s Panetta suggests maintaining an easing stance if disinflationary risks persist. US stocks drop following tariff announcements, with notable declines in the Dow, S&P, and Nasdaq. US debt market yields rise across 2-year, 5-year, 10-year, and 30-year bonds.
The dollar has gained strength against its major peers at the start of the US trading session, moving noticeably versus the euro, yen, and pound. The euro-dollar pair, while initially volatile, has returned to a relatively steady level. Meanwhile, sterling has come under pressure — a direct response to fresh UK economic figures which were weaker than expected. The latest GDP estimate for May revealed a mild contraction of 0.1% where a modest expansion had been forecast. While a slight improvement compared to the previous month’s sharper fall, the underlying message points to fragile momentum in Britain’s economic activity.
At the same time, UK manufacturing output posted a more acute drop than markets had prepared for. A 1.0% monthly decline stood well below consensus forecasts and prior figures. In practice, that has led to sterling retracing losses more sharply, with downward movement in cable likely reflecting sharply fading confidence in the UK’s industrial rebound.
The dollar-yen pair, on the other hand, has seen upward movement. This seems connected to wider demand for safer US assets and a lack of new measures from Japan’s policymakers recently. For traders, the renewed strength of the dollar here matters — particularly because short-term US bond yields have edged higher, which gives the dollar a yield-driven tailwind that’s hard to ignore.
Meanwhile, trade policy once again returns to the foreground. The US introduction of fresh 35% import duties on Canadian goods caused an immediate spike in the loonie-dollar pairing. Though the reaction settled somewhat, the initial jump reflected the surprise and scale of the revised tariff rate. Canada’s stance — a mix of disagreement with the measures and continued dialogue — suggests more rhetorical rather than policy-based responses for now.
Surprises weren’t limited to North America. Vietnam was hit with much steeper tariffs on goods rerouted to the US, contrary to its assumptions. Tariffs reaching as high as 40% on selected categories — and notably above earlier estimates — will likely impact trade flows, especially re-exported goods passing through the country. This raises the likelihood that future trade adjustments may involve further scrutiny of supply chain re-routing efforts.
Beyond trade, attention has also turned to monetary policymaking. Goolsbee has argued against short-term interest rate cuts. He flagged that although tariffs have complicated the picture, they’ve not yet led to a clear increase in inflation. Yet he did warn of reduced clarity in the economic outlook, particularly affecting Midwestern manufacturers. From our point of view, this signals the Federal Reserve may stay on hold in the near term, absent clear inflationary consequences.
Across the Atlantic, Schnabel has made it clear that future policy easing would require compelling reasons. Her messaging supports the view that although eurozone data has softened, the broader economy still shows enough resilience to justify current policy rates staying as they are. That keeps expectations for any summer changes to a minimum.
Meanwhile, Panetta opened the door slightly to easier conditions if price pressures continue to wane. For now, that looks to be more of a conditional stance than an active debate within the ECB. We should watch for any disappointments in upcoming inflation releases, particularly in southern Europe where the dispersion of price trends might grow more apparent.
Finally, in the US equity market, traders reacted abruptly to the tariff headlines. Broad indices fell — not on macroeconomic data, but on concern over corporate earnings and supply chain risks. The Dow led losses, followed by tech stocks on the Nasdaq. Yields on US government bonds rose from the two-year to the long end, as the market priced in expectations of greater issuance or a somewhat delayed easing cycle. For now, the messages across asset classes are aligned: price-in trade disruptions, reconsider interest rate path assumptions, and watch for any central bank tone shifts in response to unfolding data.
