News of the week summary - 20/07/2025
US regulation sparks historic crypto rally
The total value of the global cryptocurrency market has crossed the $4 trillion mark for the first time, propelled by a surge in investor enthusiasm following the approval of significant US legislation aimed at regulating digital assets. Bitcoin, the most prominent cryptocurrency, reached a record high above $123,000, recovering dramatically from its 2022 low of $16,000. Other major tokens, including Ethereum and Solana, also saw substantial gains, reflecting renewed confidence across the crypto space.
This bullish momentum is largely driven by expectations of institutional capital entering the market, thanks to clearer regulatory frameworks. The key legislative development is the passage of the so-called Genius Act by the US Congress, which establishes rules for stablecoins, a type of cryptocurrency pegged to traditional fiat currencies like the US dollar. Stablecoins are designed to maintain a fixed value, making them more suitable for everyday transactions and financial operations than highly volatile cryptocurrencies like Bitcoin. Their regulation is seen as a pivotal step toward mainstream acceptance of digital assets.
Additional legislation covering digital market structures and banning central bank digital currencies (CBDCs) has also been passed by the House of Representatives, although it still awaits a Senate vote. CBDCs are government-backed digital versions of national currencies, and their prohibition marks a clear divergence from the path taken by other central banks globally.
The crypto industry’s resurgence is stark when contrasted with the dramatic collapse it suffered in 2022. Back then, the implosion of the FTX exchange and the broader loss of confidence in digital assets drove the market’s value down to around $800 billion. Many investors exited the space, viewing cryptocurrencies as excessively risky.
A major factor behind the sector’s revival is the political backing from US President Donald Trump, who has actively supported crypto-friendly initiatives and appointed regulators sympathetic to digital finance. Trump is also expected to sign an executive order that would open the $9 trillion US retirement market to crypto investments, potentially unlocking massive inflows from pension funds and other long-term institutional investors.
Wall Street’s largest banks, including JPMorgan, Citi, and Bank of America, have already signaled their readiness to launch their own stablecoins once the Genius Act becomes law. This signals a major shift toward the integration of crypto into traditional finance.
However, not everyone is convinced this trend is without risks. Critics, including Senator Elizabeth Warren, warn that the new legislation lacks adequate safeguards, raising concerns that the growing overlap between crypto and conventional financial systems could amplify systemic risks in the event of another market collapse. If stablecoins or other digital assets tied to large financial institutions were to fail, the consequences could extend far beyond the crypto sector, potentially destabilizing the broader economy.
This new wave of crypto adoption marks a turning point for the industry, but whether it leads to a stable financial future or another cycle of volatility will depend on how well regulation balances innovation with systemic safety.
Brussels seeks tariff compromise
The European Union has proposed a new compromise to ease tensions with Washington, offering to scrap its 10% tariff on US car imports if the Trump administration reduces its planned duties on European cars to below 20%. This move comes as both sides try to avoid an escalation of the trade conflict ahead of Trump’s threatened 30% tariffs on EU auto exports, due to take effect on August 1.
Negotiators are considering a deal where US tariffs would fall to around 17.5% if Europe eliminated its duties. However, Brussels is also preparing for the possibility that talks collapse, with contingency plans for retaliatory measures on €72 billion worth of US goods, including Boeing aircraft and bourbon whiskey. Importantly, EU officials are also weighing levies on American digital services such as online advertising revenues, a sector where the US enjoys a strong trade surplus with Europe.
This shift marks a strategic change in Brussels’ approach. Initially, German carmakers like BMW, Mercedes-Benz, and Volkswagen had lobbied for a system allowing one tariff-free import into the US for each car exported from American plants. That plan has now been abandoned in favor of a more complex “credit system,” which ties tariff relief to the amount of US content in European car exports. Yet some automakers, such as Volvo, warn that even reduced tariffs would be difficult to absorb without some form of export credit.
The EU’s focus on digital services reflects the broader trade imbalance. While the US runs a goods deficit with the EU, it consistently posts a services surplus of around $100 billion annually, much of it driven by tech giants earning advertising and cloud-computing revenues in Europe. Targeting this sector could therefore hit Washington where it is more vulnerable.
Beyond cars, several sticking points remain in the negotiations. Brussels is pushing for exemptions from potential new US tariffs on pharmaceuticals and semiconductors, both industries critical to European economies, and has firmly rejected Washington’s suggestion of a 17% duty on EU agricultural products.
This standoff highlights the fragility of transatlantic trade relations, with the threat of a broader trade war looming. For Europe, the dispute underscores its dependence on car exports, particularly in Germany and Sweden, while for the US, the risk lies in exposing its tech-driven services sector to retaliation. How these talks conclude will shape the trajectory of EU-US economic ties at a time when both sides are already navigating a shifting global trade order.
Tariffs boost US revenues by $50B
Donald Trump’s sweeping tariffs have delivered a significant windfall to US coffers, generating nearly $50 billion in additional customs revenue in just four months, as most of America’s trade partners have refrained from striking back. According to US Treasury data, revenue from duties surged to a record $64 billion in the second quarter, up $47 billion from the same period last year.
The tariffs, which include blanket 10% levies on global imports, 50% duties on steel and aluminum, and 25% on autos, have so far faced only limited retaliation. China has imposed the most significant countermeasures, but its customs revenue rose just 1.9% year-on-year in May, suggesting its tariffs have not been nearly as lucrative. Canada has also imposed measures but on a smaller scale, while the European Union has delayed its own counter-tariffs pending the outcome of negotiations tied to Trump’s August 1 deadline.
One reason for this restrained response is the sheer size of the US market. For many countries, maintaining access to American consumers outweighs the political appeal of retaliating. Economists note that unlike the 1930s, when countries had more balanced trade ties, today’s global system functions as a “hub-and-spoke” model with the US at the center. Retaliation risks hurting smaller economies disproportionately, making restraint an act of pragmatism rather than weakness.
The burden of tariffs has not fallen exclusively on US consumers. Global brands like Apple, Adidas, and Mercedes are using strategies such as diversifying supply chains and cost-cutting to absorb part of the increases, while spreading the remaining costs across international markets. This approach limits the impact on American buyers, who may tolerate modest price increases but would resist steeper hikes of 20% or more. As a result, some of the pain is effectively exported to consumers outside the US.
Despite US tariffs reaching levels not seen since the protectionist wave of the 1930s, the muted global response has so far prevented a destructive trade war.
US inflation ticks higher
US inflation accelerated in June, climbing to 2.7% from 2.4% in May and surpassing expectations of 2.6%. The rise reflects the growing impact of Donald Trump’s sweeping tariffs, which are beginning to feed into consumer prices. The increase in the Consumer Price Index (CPI), the most widely used measure of inflation, was driven in part by higher food prices, though weaker commodity prices helped to offset some of the pressure.
More telling was the performance of core inflation, which excludes volatile food and energy costs to provide a clearer picture of underlying trends. Core CPI rose 2.9%, in line with forecasts, though analysts noted that the figure was artificially restrained by weakness in the used-car market, which has recently softened after pandemic-era surges.
Economists say the inflationary effect of tariffs is only just beginning. Since returning to office, Trump has imposed a baseline 10% duty on imports, with additional sector-specific levies. While many businesses have so far absorbed some of the costs rather than fully passing them onto consumers, experts warn this strategy will become harder to sustain if tariffs rise further. Trump has threatened to escalate duties from August 1, raising concerns of a broader inflationary wave later in the year.
Financial markets responded cautiously to the inflation report. US Treasury yields and the dollar edged higher, reflecting expectations that sustained inflation could limit the scope for aggressive monetary easing. Futures traders trimmed bets on how quickly the Federal Reserve might cut rates but still anticipate two quarter-point reductions by year-end. Equities briefly touched record highs before retreating, as investors weighed the mixed signals.
For Trump, the inflation data has not altered his public stance. He renewed his calls for the Federal Reserve to cut rates sharply, insisting lower borrowing costs would reduce government debt payments and fuel growth. But Fed officials, led by Chair Jay Powell, face a more complicated task: balancing political pressure with the risk that premature rate cuts could exacerbate inflation at a time when tariffs are already pushing prices upward.
The latest figures suggest that while tariff-induced inflation is still modest, the trend is upward. With food costs rising and supply chains under strain, the risk is that the “bite” of tariffs becomes sharper later this year, leaving the Fed in a difficult position as it tries to steer between inflation control and growth support.
Bayrou unveils austerity plan
French Prime Minister François Bayrou has unveiled a sweeping package of tax increases and spending cuts aimed at curbing France’s budget deficit, warning that the country risks a debt crisis on the scale of Greece in 2008 if it does not act. His proposals amount to €44 billion in fiscal adjustments for 2026, including reductions in pensions and welfare benefits, a new “solidarity contribution” from the wealthy, and a freeze on most areas of government spending.
Perhaps most controversially, Bayrou is proposing to scrap two national holidays (Easter Monday and May 8) arguing that the measure would boost output and generate an estimated €4.2 billion in additional revenue. He also wants to scale back unemployment benefits, reflecting his view that France “needs to work more” in order to reignite growth.
The only area shielded from cuts is defense, which President Emmanuel Macron has ordered to rise by 10% over the next two budget cycles (around €6.5 billion) amid growing security concerns tied to Russia.
Opposition to the plan has been fierce. Both left-wing and far-right parties have denounced what they describe as an austerity budget that unfairly burdens workers and retirees. Marine Le Pen’s Rassemblement National, which helped topple Bayrou’s predecessor Michel Barnier last year over pension reforms, has already threatened to censure the government if the measures are not revised. Bayrou is expected to rely on a constitutional provision allowing the government to bypass a parliamentary vote on the budget, but this would open the door to a confidence motion that could end his premiership.
The urgency of the reforms stems from France’s deteriorating public finances. At the end of 2023, the deficit stood at 5.8% of GDP, the third-worst in the EU. Bayrou’s plan aims to bring the shortfall down to 4.6% by 2026, with a longer-term goal of reaching the EU’s 3% threshold by 2029.
Whether these measures pass or fail, Bayrou’s gamble underscores the mounting pressure on France to restore fiscal credibility. With debt levels high and market scrutiny intensifying, the government is caught between the economic imperative to act and the political risks of imposing unpopular reforms.