Ebury Market Weekly Report: Trade War Flare-Up Caps Dollar Rally
The US dollar posted its strongest performance in months as political uncertainty weakened the euro, but renewed trade tensions between the United States and China disrupted global markets by the end of the week.
Equities fell sharply on Friday, while government bonds rallied amid investor flight to safety. The dollar initially retreated modestly but recovered early Monday in Asian trading. Most major currencies depreciated against the dollar, with the Brazilian real leading losses — down nearly 4% due to fiscal concerns.
Enrique Díaz-Álvarez, Chief Economist at Ebury, commented, “The ongoing US federal government shutdown means there will be no major economic releases from the US this week. Europe’s calendar is also light. Market attention will likely center on the renewed trade war between the US and China and the potential resolution of the US government shutdown. The UK’s upcoming labor market data for August and payroll numbers for September will also be closely watched.”
GBP
In the UK, investor focus remains on fiscal conditions, although the full 2026 budget will not be revealed until November 26. Last week’s market risk aversion boosted demand for Gilts, with traders moving from equities into government bonds. Economic indicators remain stable, and this week’s labor market report is expected to offer insights into the country’s economic resilience. For now, Sterling is likely to move in tandem with the euro.
EUR
Political developments in France played a major role in driving last week’s dollar rally, as the euro — the main global alternative to the dollar — came under pressure. Although fears of fresh elections or a Macron resignation have subsided, concerns persist over the French government’s ability to pass its budget. This fiscal uncertainty may continue to weigh on the euro, with attention likely focused on French politics in the coming week.
USD
The ongoing US government shutdown has halted key economic data releases, making it difficult to assess real-time economic conditions. However, markets appear more preoccupied with the US-China trade conflict. Washington recently imposed an additional 100% tariff on China in response to Beijing’s export controls on rare earths, where China dominates global supply. The tariffs, set to take effect on November 1, are intended to allow space for negotiation.
Initial reactions saw the dollar weaken slightly — a sign that investors view escalating trade tensions as a negative driver for the US currency.
