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EU delays retaliation after Trump’s surprise tariff escalation
The euro remained stable Monday as President Trump shocked markets with 30% tariffs on EU goods, while central banks brace for a critical week of inflation data across major economies.
Trump imposes 30% tariffs on EU and Mexico imports, effective August 1, exceeding prior warnings.
The EU holds back immediate retaliation, keeping EUR 21B in suspended tariffs on pause until August.
A packed inflation calendar from the US, UK, Canada, and Japan will test central banks’ resolve.
Eurozone seeks to hedge trade risk with Indonesia pact, but investor caution rises ahead of August deadlines.
Euro steady as EU absorbs Trump’s surprise 30% tariff strike
Risk sentiment in Asia turned mildly negative Monday after US President Donald Trump escalated trade tensions with an unexpected 30% tariff on goods from the European Union and Mexico. The move, effective August 1, was steeper than the 20% rate hinted at during Trump’s Liberation Day speech, and marked a return to aggressive trade pressure from Washington.
While Mexico appeared to fare better than Canada in the latest round—avoiding the 35% rate imposed on Ottawa last week—the broader message was clear: the Trump administration is embracing a maximalist tariff strategy across dozens of trade partners. Rates now range between 20% and 50% for more than 20 nations.
The EU’s reaction was notably restrained. European Commission President Ursula von der Leyen said the bloc would delay retaliatory action until early August, choosing diplomacy over escalation for now. She condemned the US move as “disruptive” but insisted on proportional response. The EU had previously suspended tariffs on EUR 21 billion worth of US goods and is now keeping that threat on standby.
EU eyes Indonesia deal as part of diversification strategy
In a bid to reduce exposure to US trade risks, Brussels also pushed forward with a free trade agreement with Indonesia. Von der Leyen confirmed that the EU and Jakarta had reached a political breakthrough on a deal stalled for years. While the move signals strategic diversification, it’s unlikely to offset short-term trade shocks. Without de-escalation, volatility may rise further as the August tariff deadline nears.
Markets are now watching for signs of renewed dialogue. Unless bilateral talks between Washington and Brussels regain traction, the risk of retaliation and further disruption remains high.
CPI week puts global central banks in the spotlight
While geopolitics dominate the headlines, this week’s focus shifts to inflation data across major economies. After months of easing inflation, there are signs the disinflation trend may be bottoming out. Markets are on alert for reacceleration, especially in the US, where both headline and core CPI are expected to edge higher.
The Federal Reserve, already cautious about premature easing, will likely respond with even more patience if this trend is confirmed. Upcoming PPI and retail sales data will add weight to the picture. With August tariffs looming, the Fed has little margin for error. Markets currently expect a rate cut in September, but odds could shift depending on this week’s data.
In Canada, a blowout jobs report last week has already pushed rate cut expectations to the sidelines. If CPI surprises to the upside on Tuesday, the Bank of Canada may pause longer, potentially extending into the fall.
UK’s tricky path: Weak growth, sticky inflation
The UK economy faces a dual threat. Growth is faltering—GDP fell again in May—yet inflation remains uncomfortably high. The Bank of England is widely expected to deliver a rate cut in August, but the pace of future easing will depend on this week’s CPI and labor data. Wage growth and unemployment figures will be particularly crucial in shaping expectations.
Japan and China: Holding course, watching trade
Japan’s inflation print is unlikely to shift the Bank of Japan’s policy. With external headwinds growing, the BoJ remains focused on stability rather than normalization. Even an upside CPI surprise is unlikely to prompt a change this year.
China, meanwhile, will report Q2 GDP, trade, and retail data Tuesday. While growth is expected to slow modestly, investors are watching closely for signs of stimulus or structural shifts. Germany’s ZEW sentiment index, also due Tuesday, will help gauge confidence in Europe’s export engine amid the tariff storm.
Economic calendar highlights this week
- Tuesday: China GDP, retail sales, industrial production; Germany ZEW sentiment; Canada CPI; US CPI
- Wednesday: UK CPI; Eurozone trade; US PPI, industrial production, Fed Beige Book
- Thursday: Japan trade; Australia employment; UK employment; Eurozone CPI (final); US retail sales, jobless claims, Philly Fed, import prices
- Friday: Japan CPI; US housing starts, building permits, University of Michigan sentiment
