Global Markets React to Trump Tariffs: Bitcoin Soars, Stocks Gain

The EUR/USD pair extended its decline to around 1.1665 during Friday's Asian trading, following Thursday's 0.3% drop, as the Euro faced selling pressure from US President Donald Trump’s expansive new tariff policy. Trump publicly detailed plans for blanket duties of 15% or 20% on unspecified "remaining trade partners" this week. He also announced a 35% tariff on Canadian imports, effective August 1, stressing its potential to increase. These announcements, following over 20 similar letters to other partners and looming EU notifications, raise concerns that renewed trade tensions could significantly undermine the Euro.

The persistent inflation threat from these tariffs could compel the US Federal Reserve (Fed) to delay interest rate cuts until next year, likely bolstering the Greenback. This contrasts with market expectations for 50 basis points of Fed reductions by year-end, starting October. Recent US Initial Jobless Claims, declining to 227K for the week ending July 5, further suggested a tight labor market, reinforcing little urgency for Fed cuts and supporting the USD. Conversely, the European Central Bank (ECB) is expected to remain cautious on rate reductions, potentially limiting the Euro's losses. ECB members Robert Holzmann and Joachim Nagel expressed prudence, with their data-dependent approach possibly strengthening the Euro against the US Dollar. Traders will also monitor speeches from ECB policymakers Fabio Panetta and Piero Cipollone later today.

Bitcoin continues its historic rally, surging to fresh highs on Friday, topping $118,000, propelled by robust institutional interest and crypto-friendly policies under U.S. President Donald Trump. This latest surge means Bitcoin added 4.3% on Thursday and is trading around 8.8% higher since the beginning of the week. The world’s largest cryptocurrency is set for its third consecutive weekly gain.

This monumental achievement, seeing Bitcoin reach a new all-time high above $112,000 earlier this week, is largely attributed to increasing institutional investor participation. Firms are aggressively adding Bitcoin to their treasury portfolios, with companies like MicroStrategy (MSTR) remaining prominent accumulators, and new entrants such as GameStop Corp (GME) also beginning board-approved Bitcoin purchases. This institutional embrace is further bolstered by surging ETF inflows, with U.S. spot Bitcoin ETFs witnessing $1.18 billion in net inflows as of Thursday, marking their sixth straight day of sharp gains. BlackRock’s IBIT led with $448.5 million in inflows, complemented by strong additions to Fidelity’s FBTC and Bitwise’s BITB. Total trading volume across the 12 Bitcoin ETFs hit $6.3 billion, the highest daily level since late May.

Legislative optimism also fuels this rally. President Trump’s administration, having earlier approved a strategic Bitcoin reserve, continues to foster a favorable regulatory tone. Looking ahead, investors are keenly focused on “Crypto Week” starting July 14, when U.S. lawmakers in Washington are expected to push forward at least three major bills aimed at regulating digital assets, further solidifying Bitcoin's status as a legitimate institutional-grade asset.

The UK economy experienced its second consecutive quarterly contraction in May, signaling a persistent slowdown after April's sharp decline and increasing pressure on the Bank of England (BoE) to ease monetary policy.

Data from the Office for National Statistics revealed a 0.1% monthly fall in UK GDP for May, following a 0.3% contraction in April—the steepest since October 2023. This outcome was weaker than the anticipated 0.1% growth, with industrial and manufacturing output also declining by 0.9% and 1.0% respectively. The April downturn was notably driven by a drop in legal activities, exacerbated by rising energy bills, increased National Insurance contributions, and tariff uncertainty, factors that continue to weigh on the world's sixth-largest economy. Annually, the UK economy expanded by 0.7% in May, a retreat from April's 0.9% growth.

Amidst this economic backdrop, the sterling fell by around 0.13% against the dollar on Thursday and continued to head lower early on Friday. Conversely, the UK 100 index (FTSE 100) gained around 1.4% over the past two days and added another 0.8% as of 06:49 AM Friday.

Looking ahead, UK Chancellor Rachel Reeves may need to implement significant tax increases later this year, as a rebellion within the ruling Labour Party over welfare reforms casts doubt on the government's ability to sufficiently cut spending. The Bank of England, which held interest rates at 4.25% last month, is now expected by investors to reduce borrowing costs by at least two quarter-point moves, reaching 3.75% by year-end.

The US 30, which tracks the performance of the Dow Jones Industrial Average future, rose by 0.53% on Thursday, nearing its all-time high levels, paring back earlier weekly losses despite a fresh round of tariff threats from President Donald Trump. Investors initially balked at announcements of double-digit tariff increases on imports from specific countries, including South Korea and Japan, as well as 50% tariffs on all copper imports and goods from Brazil.

With reciprocal tariffs delayed until August 1, investors are optimistic that the Trump administration will further delay or suspend both the initially announced reciprocal tariffs and the newer batch targeting specific countries and sectors. Market participants remain confident that the brunt of Trump’s tariff threats will not materialize, and trader confidence is gradually increasing as inflationary pressures from the already enacted tariffs remain largely subdued.

Adding to positive market sentiment, US Initial Jobless Claims came in better than expected on Thursday. The figure of 227K new jobless benefits applicants, compared to the previous week's 233K, was a stable data point that helped maintain investor confidence.

Meanwhile, Federal Reserve (Fed) officials who advocate for interest rate cuts are becoming more vocal. The latest Fed Meeting Minutes revealed a widening divergence in policymakers' views on rate cuts, with more dovish personnel publicly expressing their positions. This comes as President Donald Trump continues his campaign for rate reductions and criticism of Fed Chair Jerome Powell, who maintains the Fed's wait-and-see stance on interest rates amid evolving trade policies impacting U.S. markets and businesses.