Forex Market Snapshot – July 11, 2025

The U.S. Dollar Index (DXY)—which measures the dollar against a basket of six major currencies—has slipped to its lowest level in three weeks, suggesting broad-based repositioning away from dollar holdings.

Trump’s Tariff Impact on Currency Sentiment

Donald Trump’s surprise reemergence on the economic stage, with promises of sweeping tariffs on Canada, Brazil, and critical commodities like copper, sent immediate shockwaves through the FX world. The proposal is widely interpreted as a sign of U.S. re-engagement with protectionist economic policies that disrupt capital flows and global trade routes.

Key Announcements:

• 35% tariff on Canadian imports

• 50% tariff on copper and Brazilian commodities

• Pledge to “reshape global trade to protect American sovereignty”

Markets fear retaliatory actions that could weigh on global trade volumes and disrupt FX liquidity, especially in emerging markets with close U.S. export ties.

“The FX market is now pricing in a significantly higher risk premium for U.S.-centric portfolios,” said Aiko Tanaka, FX strategist at Nomura. “Any signal of retaliation from Canada or Brazil could deepen this adjustment.”

EUR/USD Gains Despite European Growth Concerns

The euro gained modestly against the U.S. dollar, even as the eurozone continues to struggle with weak manufacturing data. The single currency’s strength is less about regional fundamentals and more about capital fleeing the dollar amid tariff uncertainty.

• EUR/USD: Rose to 1.0847

• German bund yields: Held steady at 2.11%

This reflects investor rotation into “non-dollar” havens amid geopolitical instability rather than a conviction about Europe’s economic prospects.

GBP/USD Strengthens on UK Equities and Safe-Haven Rotation

The British pound advanced to 1.2771, buoyed by a rally in the UK’s FTSE 100 stock index and increased interest in UK assets amid global dislocation. Commodity-heavy London-listed firms such as Glencore and Rio Tinto benefited from tariff-fueled supply chain distortions, boosting demand for sterling in global portfolios.

“Sterling is acting as a strange sort of safe haven this week,” noted Amanda Stillwell, a macro analyst at HSBC. “The combination of resource exposure and relative political calm is making it temporarily attractive.”

USD/JPY Drops as Traders Seek Stability in Yen

The Japanese yen saw a modest appreciation, pushing the USD/JPY pair down 0.18% to 160.20. Despite ongoing yield differentials between the U.S. and Japan, currency investors are using the yen as a geopolitical hedge.

• The yen typically strengthens in times of global uncertainty.

• The Bank of Japan, though dovish, may come under pressure to intervene if yen strength intensifies.

Emerging Markets Face Uncertainty

EM currencies were mixed but vulnerable. The Brazilian real and Mexican peso both dropped sharply on fears of secondary spillover from U.S. tariffs. The Chinese yuan held relatively steady due to capital controls, but expectations are rising for further intervention by the People’s Bank of China.

Federal Reserve Dilemma: Cut or Hold?

The latest moves in the dollar complicate the Federal Reserve’s roadmap:

• A weaker dollar could stoke imported inflation, making rate cuts riskier.

• But ongoing trade tensions could simultaneously slow growth, prompting the Fed to ease anyway.

Fed Chair Jerome Powell is expected to address these competing pressures during the upcoming Jackson Hole symposium in August.

“Trump’s trade policies may box the Fed into a corner,” said Samuel Deen at JPMorgan. “They may have to cut rates even as inflation expectations drift upward due to supply chain disruptions.”

Market Strategies: How to Trade the Shift

Forex Traders Should Watch For:

• Increased volatility in major pairs

• Safe-haven flows into yen, Swiss franc, and gold

• Further downside in USD/CAD, especially if Canada retaliates

• Potential spike in dollar-yuan if China steps into the tariff fight

Suggested Positions:

• Long EUR/USD on pullbacks

• Short USD/CAD anticipating Canadian pushback

• Long Gold/XAUUSD as a hedge against broad currency instability

Conclusion

Trump’s latest protectionist salvo has thrown a wrench into forex markets already bracing for Fed policy uncertainty and sluggish global growth. As investors navigate crosswinds of political rhetoric and trade realignment, the dollar’s once-unquestioned dominance in global FX appears to be entering a period of vulnerability. Traders should prepare for a turbulent Q3 as markets digest new geopolitical and economic realities.