Tariffs extended as Trump hints at fresh talks

During yesterday’s barrage of tariff-related reports, several key developments emerged. Letters sent to trade partners confirmed tariff rates that closely resembled those publicised on Liberation Day. While the measures had been scheduled to take effect on 9 July, the implementation has been discreetly delayed until 1 August. Even this new date appears negotiable, as Trump remarked it was not “100 percent firm.” The underlying signal is unmistakable: Trump remains prepared to resume discussions with countries prepared to offer further concessions.

As markets digested the prospect that these announcements were part of Trump’s habitual approach—aggressive statements followed by willingness to bargain—select currencies came under renewed strain. The yen and South Korean won, alongside commodity-focused currencies such as the Australian and Canadian dollars, lost up to 1 percent. Nonetheless, they later regained ground in the Asian trading hours, as optimism re-emerged and traders re-evaluated the likelihood of constructive negotiations.

These weaker currencies share one feature: negotiations with Washington have reached an impasse, with scant evidence of progress. Meanwhile, the U.S. dollar outperformed, pushing the dollar index (DXY) up by 0.5 percent—its most robust single-day advance since the mid-June flight to safety.

Turning to the euro, EUR/USD slipped by nearly 0.6 percent at one stage but staged a recovery as the European Union retained a firm negotiating stance. EU officials are working to finalise an initial trade agreement with the U.S. this week, hoping to secure a 10 percent tariff threshold before the August deadline. Attention is now shifting to whether the EU–U.S. discussions will proceed as planned. Should talks prove more fraught than anticipated, EUR/USD could find support near $1.1700.

Alongside these negotiations, the administration has issued further letters outlining updated tariff schedules from 1 August. These apply to Malaysia, Kazakhstan, South Africa, Laos and Myanmar. Some rates have been trimmed: Myanmar will drop from 44% to 40%, Laos from 48% to 40% and Kazakhstan from 27% to 25%. South Africa remains unchanged at 30%, while Malaysia increases slightly to 25%, aligning with Japan’s rate.

Beyond the rate changes, the more consequential development is the three-week postponement to the deadline, allowing extra time for bargaining and the possibility of sealing new agreements. Notably, no such letters have been addressed to Europe or Canada, a detail that has not escaped traders’ notice. Volatility surged immediately. Equities pulled back by nearly 1 percent and the dollar gained around 0.3 percent on the news.

Altogether, these events illustrate how intricate U.S. trade policy has become. The administration’s ambition to finalise a large number of deals within 90 days is increasingly confronting the reality of prolonged discussions. With the clock ticking towards 1 August, the coming weeks may prove pivotal for nations hoping to avoid steeper trade barriers.

Sterling falters as fiscal worries grow and tariff revenue props up the dollar

The pound did not escape the turbulence. After climbing to around the 3.5-year high close to $1.3800, GBP/USD reversed direction sharply, falling below the $1.36 mark. This decline reflected renewed momentum behind the dollar in the run-up to the original implementation date, combined with deepening unease about the UK’s public finances.

Fiscal policy has become an increasingly heavy burden for both sterling and the dollar. Bond investors on both sides of the Atlantic are growing more sceptical about the credibility of medium-term fiscal plans. In the United States, the government faces a projected $3.4 trillion deficit stemming from tax overhaul measures. Meanwhile, Britain is grappling with stricter budget constraints, especially in light of last week’s sudden abandonment of Keir Starmer’s welfare initiative, which carried a £5 billion price tag.

Despite these pressures, the dollar enjoys one important advantage: a reliable flow of tariff income. No matter where the final average tariff settles, and despite the continual uncertainty surrounding policy, revenues will remain substantially above levels seen before 2025. Over the next ten years, tariff receipts are forecast to reach $2.3 trillion, even after allowing for reduced trade volumes and a gradual shift towards lower-tariff goods and trading partners.

In an ironic twist, this fiscal cushion lends the dollar more credibility than sterling, suggesting that trade policy rather than political promises may be the primary source of economic stability for the foreseeable future.