Euro falls back as tariffs and French political uncertainty impacts

EUR/USD fell back towards the 1.16 level on Tuesday as markets reacted to the June US inflation report by bidding up the dollar against most currencies. Yet, expectations for a convergence in economic performance between the US and the Euro Area should keep the common currency well bid in the coming weeks. Yesterday’s German economic sentiment data (52.7 from 47.5) and the May industrial production figures (3.7% from 0.2%) were resoundingly upbeat, suggesting that businesses are weathering the threat of US tariffs rather well.

US-EU trade negotiations are ongoing and, despite Trump’s latest threat over the weekend, the striking of a framework deal before the 1^st August still appears more likely than not. Euro Area inflation data for June (Thursday) will probably go under the radar, as this is merely a revision to the initial estimate.

Aside from the trade negotiations, we will be keeping tabs on the latest political uncertainty in France, after PM Francois Bayrou yesterday proposed scrapping two public holidays in an effort to sidestep what he described as a Greek-scale financial crisis. This is not yet being reflected in the euro, but it may only be a matter of time.