The U.S. dollar index surged to fresh two-week highs on Friday, bolstered by a sharp rise in U.S. Treasury yields and heightened market anxiety driven by President Donald Trump's aggressive tariff escalation. Trump unveiled significant tariffs targeting key commodity-exporting nations, including a notable 35% levy on Canadian imports and a threatened 50% tariff on Brazilian goods. These measures substantially elevated investor concerns about the trajectory of global trade and intensified fears over potential inflationary pressures. Reinforcing fiscal policy impacts, the U.S. government reported a surprisingly robust $27 billion June budget surplus, driven by record-high customs duties revenues, further underscoring the fiscal consequences of Trump's expansive trade policies.

Market unease deepened as Chicago Fed President Austan Goolsbee expressed explicit concerns that Trump's latest tariff actions have significantly complicated the inflation outlook, introducing uncertainty into the Federal Reserve's monetary policy path. Tensions between the Fed and the White House further escalated, highlighted by sharp criticism from a senior Trump administration official, accusing Fed Chair Jerome Powell of gross mismanagement of the central bank and escalating investor concerns over future Fed leadership stability.

Euro pressured by dovish ECB, falling yields amid tariff uncertainty

EUR/USD moved notably lower, pressured by declining German bund yields and dovish rhetoric from prominent European Central Bank officials. ECB Governing Council member Fabio Panetta cautioned on the region’s economic growth and inflation outlook, explicitly emphasizing vulnerabilities as Europe braces for possible adverse effects of heightened U.S. tariffs. ECB Board member Isabel Schnabel reinforced the dovish sentiment by highlighting that the bar for further rate cuts remains exceptionally high, noting the euro area's resilience despite global trade disruptions.

Technically, EUR/USD showed signs of weakening momentum, threatening to breach critical support around its 21-day moving average at 1.1660. Market uncertainty is heightened by anticipation of President Trump's planned major policy statement regarding Russia next week, potentially introducing further geopolitical volatility that could significantly impact eurozone financial stability.

Sterling declines on disappointing UK GDP data and fragile sentiment

GBP/USD faced pronounced selling pressure after unexpectedly disappointing UK GDP figures, pushing the pair sharply lower toward its key technical support at the 55-day moving average of 1.3483. Although sterling managed a modest stabilization above the psychological 1.35 threshold, overall sentiment remained fragile amid rising speculation about potential Bank of England rate cuts. Persistent softness in UK economic data, combined with mounting fiscal concerns, reinforced investor caution. A decisive technical break below the June low at 1.3373 could trigger accelerated downside moves, opening prospects for deeper near-term declines.

USD/JPY climbs sharply, yen broadly weakens

USD/JPY surged significantly above the 147.20 level, driven primarily by soaring U.S. Treasury yields, robust oil prices, and broad-based dollar strength. Investors now closely watch critical technical resistance levels, including the June peak at 148.02 and the May high at 148.65. The yen weakened broadly against major crosses, with AUD/JPY notably advancing toward its February highs near 97.32, supported by substantial gains in metals and energy markets.

Commodity currencies moderate despite robust commodity gains

Commodity-linked currencies, including AUD/USD, experienced moderate downward pressure but losses were contained by strong commodity market performances. The complex interplay between heightened tariff concerns and robust commodity prices created divergent forces, limiting sharper declines. Investors remain cautious as tariff-related uncertainties intensify, influencing broader market dynamics.

Bond markets rattled; yields surge amid inflation fears

U.S. Treasury yields jumped sharply by 4 to 10 basis points across maturities, reflecting aggressive market repositioning due to rising expectations of inflationary pressures driven by tariffs. This yield surge notably steepened the yield curve, underscoring investor anxiety about tighter financial conditions and elevated inflation risks stemming from trade uncertainties.

Equities retreat amid heightened trade anxiety

U.S. equity markets exhibited caution, with the S&P 500 declining by approximately 0.25%, led lower by broad-based sector losses. Investors demonstrated unease about the implications of intensified global trade disputes, raising concerns about corporate earnings and broader economic growth prospects.

Commodities display heightened volatility; oil and precious metals rally

Commodity markets experienced significant volatility. Oil prices rallied substantially by more than 3%, supported by warnings from the International Energy Agency regarding potential supply constraints. Precious metals also performed strongly, with gold gaining 1.0%, and silver surging impressively by 3.8%, highlighting sustained investor appetite for haven assets amid geopolitical uncertainty. Additionally, Bitcoin advanced by 3.6%, benefiting from demand for alternative stores of value. Copper prices edged modestly higher by 0.32%, reflecting complex dynamics between competing supply-side concerns and ongoing uncertainties around global demand impacted by escalating tariffs.