Morning Report
July 11, 2025
“The Canadian dollar fell 0.5% overnight as Trump shocked Carney with a new 35% tariff threat, and in the UK, sterling has been hurt by a second monthly economic contraction. The rest of the market is holding up, but this only emboldens the US administration to push harder.”
Tim Hallinan – Trading Director
USD
The complacency seen in markets recently appears to have emboldened Trump to pursue his aggressive tariff policy again, having threatened a 35% tariff on Canada on 1st August yesterday and hinted at increasing the blanket tariffs from 10% to 15-20%. Headlines like these are no longer the unambiguous dollar negative though – in fact, the dollar has strengthened over the last day or so. If the equity markets can continue to rise even as the president makes these threats, he may feel like he can go even further. The data diary is relatively empty today, so the immediate focus for traders is on Trump’s tariff letter to the EU and next Tuesday’s CPI inflation report. Very few are expecting a rate cut at the July meeting and this single print is unlikely to change that significantly, but it can certainly increase the probabilities for September and October if tariffs are still having no major impact.
GBP
The UK economy contracted for the second month in a row in May, with this morning’s month-on-month figure printing at -0.1%. It is worse than expected but not altogether that surprising for markets – most saw the Q1 surge as a temporary blip skewed by tariff frontloading and the housing sector, and the labour market has begun to show signs of buckling under the employers’ tax rises and the Bank of England’s restrictive monetary policy. The pound has moved lower across the board, but only modestly. It won’t be a good reading for Reeves, whose decisions get harder as the UK’s growth profile shrinks and her fiscal headroom is squeezed.
EUR
EURUSD fell back into the 1.16s yesterday as the dollar gained some ground. Despite some initial optimism, officials seem to have gone quiet on the potential trade deal between the EU and the US, and now investors are waiting on the tariff level Trump is likely to threaten for the 1st August deadline. The worst case for markets would be a breakdown in talks and a full-blown trade war, though nobody is panicking about that just yet. Data-wise we only get some final French inflation figures today, but we do get four ECB speakers throughout the day.
Markets
The equity markets are taking Trump’s tariff letters in their stride, with the S&P 500 hitting a fresh record high yesterday. The UK’s FTSE 100 also hit an all-time peak yesterday, though it may not stay there given the weak GDP figure this morning.
Main Economic Events (All Times CET)
8:00am: UK GDP
2:30pm: Canada Employment Change
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