EU Strikes Back, U.S.-EU Trade Tension Escalates
With the public release of a 202-page countermeasure list against the U.S. by the EU, trade war tensions have sharply intensified. The list covers high-value export goods from airplanes and cars to whiskey and chemicals, reflecting the EU's frustration with U.S. tariff hikes reaching a critical point.
German Chancellor Merz, France's Trade Minister, and multiple EU Commission officials have issued statements emphasizing that the EU is "prepared" and will not hesitate to take retaliatory actions. The EU's hardline stance has not only raised the bar for trade agreements but also heightened market apprehension over global trade order.
In the absence of substantive breakthroughs in negotiations, the euro surged significantly against the dollar in the past 24 hours as investors turned to euro and other non-U.S. assets for hedging.
Federal Reserve Signals Hawkish Stance, Short-Term Rate Cut Hopes Dwindle
Despite June's PPI data showing moderate inflation decline, Fed officials have not shifted to a dovish stance. Dallas Fed President Logan stated publicly that current policy needs to remain "moderately restrictive" and warned that premature rate cuts could undermine the existing price stability process.
Boston Fed President Collins also remarked that in an environment of sustained economic uncertainty, the Fed should keep rates unchanged to observe the inflation path. These hawkish remarks have reinforced the market's belief in "no short-term rate cuts." CME rate futures show the probability of a rate cut in September has slipped below 50% from earlier highs.
This stands in stark contrast to the ECB's strategy of maintaining stable rates and focusing on growth, reinforcing market expectations of further divergence between U.S. and EU policies, indirectly boosting the euro's performance.
U.S. Economy Faces Structural Inflation Imbalance, Trade War Risks Intensify
Although wholesale prices did not rise as expected, details reveal that the U.S. inflation structure is changing: goods prices are rising due to tariffs, while service sector prices are declining due to weak consumer demand and a decrease in international tourists.
Prices in services like airlines and hotels continue to fall, reflecting consumer caution; manufacturers face profit compression due to rising costs. Economists widely believe that tariffs exert dual pressure on corporate pricing power and consumer confidence, potentially becoming the main obstacles to economic growth in the coming months.
RSM US Economist Brusuelas bluntly stated: "The shrinking demand for tourism is gradually impacting retail, entertainment, and dining sectors, posing a risk of weakening internal momentum for the U.S. economy."
Currency Market Volatility Increases, Focus Shifts to Eurozone and U.S. Data
Affected by political and macroeconomic factors, the dollar index has encountered continuous pressure, while the euro has gained favor due to the EU's strong stance and policy stability, posting its largest single-day gain against the dollar recently.
Investors are closely watching the upcoming Eurozone final CPI and U.S. retail sales and initial jobless claims data to further confirm economic momentum direction. Strong Eurozone data may heighten downward pressure on the dollar.
The market broadly expects that the Fed will maintain a "wait-and-see" approach in the coming months, with Trump's trade policy remaining a core factor stirring the currency and capital markets.
Era of Policy Divergence, Market Choices Shifting
Differences between the U.S. and EU in tariffs, monetary policies, and economic strategies are widening, and global capital flows are quietly changing. The EU, with "institutional stability" and "policy clarity," is regaining capital attention, while the dollar's volatility makes safe-haven assets more attractive.
In the coming weeks, trade negotiation developments and key economic data will determine whether the market further shifts towards Europe. For investors, finding a balance between asymmetric monetary policies and global trade restructuring presents the largest challenge in the current environment.
