USD

With his proposed tariffs on Mexico now back in the box, President Trump has allowed Mexico 45 days to reduce the number of US-bound migrants. Now the ball is in Mexico’s court, the President decided to use the threat of tariffs for the second time in a week – this time on China. 

Tariffs of 25% or ‘much higher than 25%’ on $300bn of Chinese goods were suggested by Trump should President Xi Jinping on China refuse to meet him at the upcoming G20 summit in Japan. This meeting would be the first between the two since talks broke down last month, leading to further escalation from both sides and a growing fear of tariffs.

Such decisive and clinical use of tariffs has allowed the President to open up the door to a potential solution to the standoffs he faced, however this did little for USD as investors’ expectations of Federal Reserve interest rate cuts continue to swell. 

In other news, President Trump also publicly expressed his doubt over the health of competition within the aerospace and defense industry following the announcement of the UTC-Raytheon merger.

EUR

Following bank holidays in many European countries, parliaments across the continent reopened on Tuesday. Purely getting back into the swing of things could be on the agenda for the day, with only the Sentix Investor Confidence data making any difference. The research group reported a sharp deterioration in investor confidence in the EU in June. This has been attributed in part due to the US-China trade war. Sentix reported a score of -3.3 versus the expected 2.5.

Market news to keep a close eye on is ECB President Draghi’s speech tomorrow, however significant impact on the euro isn’t on investors’ minds. What is expected, is that Draghi will expand on his stance from last week, where the subtle tone displayed helped to spur on the currency. In addition, many will be looking for signs that interest rates could be cut further.

GBP

The race for the Conservative Party leadership, and more importantly to be the next Prime Minister, has been whittled down to 10 Tory hopefuls. As campaigns are launched today, many are announcing their plans and policies should they emerge victorious.

Boris Johnson remains the favourite, and yesterday proposed a tax cut on those earning over £50,000 a year, while his main contender Michael Gove announced plans to scrap VAT and replace it with a sales tax. Both of these announcements were followed by outsider Rory Stewart warning the other candidates over their spending pledges, labelling some as ‘cheap electoral bribes’. 

While hugely important, policies on spending and taxation are a supporting act for the leadership candidates, who are now being looked at to deliver more-detailed Brexit strategies as the race heats up.  

Uncertainty over the next PM, as well as continuing uncertainty over the nature of Brexit itself, continues to apply pressure to the pound. Also affecting sterling was the ‘dramatic’ fall in car output that slowed economic growth for the three months to April to 0.3%, however today’s Average Earnings Index reported a 3.4% growth on basic pay, while unemployment stuck at its 44-year low.

CAD

The Canadian dollar is still riding high even after the US and Mexico struck an agreement to avoid tariffs on Mexican goods. On the back of recent positive employment and trade data, as well as a shrinking trade deficit of goods in April, the Canadian dollar has enjoyed a prosperous two weeks against USD, though the road ahead is slightly less clear with chances of a Bank of Canada interest rate cut at 50% according to investors.

The US trade wars will continue to have a significant impact on the Loonie, with the threat of tariffs on Mexico also a threat of a new North American trade deal. As a huge part of Canada’s trade involved exports to the States, the CAD is greatly tied to any developments in trade from the US. 

JPY

Following its defiant performance last week, the yen lost ground against the dollar as the relief rally on easing trade tensions between the US and China continued. This all followed the belief that President Trump and President Xi will meet at the summit in Japan later this month.

More developments are expected with an announcement on industry activity from Japan’s Ministry of Economy, Trade and Industry scheduled for Thursday.