USD: Russia news could be dollar driver today
News from the weekend that the US could impose 30% import tariffs on the EU and Mexico hasn't moved markets too much. Equity futures in the US and Germany have been marked down 0.4% and 0.6% respectively, while the dollar is marginally stronger. The moves have not been larger since investors see these threats as a Washington negotiating tactic to push the other side over the line into a deal. Here's the view from our trade team on the weekend events. Our baseline assumes that better deals than this get agreed by the 1 August deadline and that we are not going to see a repeat of the early April market shock in response to Liberation Day tariffs.
More interesting today from the White House could be news of fresh sanctions on Russia. Clearly, US President Donald Trump is losing patience with Russian President Vladimir Putin, and the decision to send Patriot missile defence systems to Ukraine reflects a turnaround in White House thinking. In terms of sanctions, look out for the announcement of any secondary sanctions on those countries buying Russian oil. 500% tariff rates on countries helping Russia have been muted. India would look vulnerable here. But also, energy prices could get a bump if sanctions finally bite into Russian oil and gas supplies. A jump in energy is good news for the energy-independent US (and the dollar) and negative for the big energy importers in Europe and Asia.
Away from trade and geopolitics, it is an important week for macro too. Tomorrow sees the release of the June US CPI figure. This is expected to start ticking back up to 0.3% month-on-month increases as the effects of tariffs finally start to show up, although the effects might be more sizeable in the July-September data than the June data. Still, the data has the potential to start removing the 17bp of easing priced in for the 17 September FOMC meeting and prove slightly positive for the dollar.
DXY could recover to fill a gap to 98.35, should today's sanction news on Russia move energy prices.
