Euro Falls as Dollar Surges After Landmark U.S.-EU Trade Deal

Markets respond to fresh tariffs, energy pledges and shifting investor sentiment ahead of key economic data

U.S.-EU Trade Agreement Sends Dollar Soaring

The U.S. dollar gained strength once again on Tuesday following the announcement of a sweeping U.S.-EU trade agreement, which imposes a 15% import tariff on EU goods. The Dollar Index, which measures the greenback’s strength against a basket of major currencies, rose 0.2% to 98.607 by 08:10 GMT, building on earlier gains.

Investors responded positively to the deal, which also includes a $600 billion EU investment pledge into the U.S., alongside plans to ramp up purchases of American energy and military equipment. The agreement, while welcomed by Washington, has stirred political backlash in Europe.

Euro Weakens Amid Unequal Trade Terms

The euro continued its decline, with EUR/USD dropping 0.3% to 1.1559, following a sharp 1.3% fall the day before—its worst single-day slide in over two months. Traders and analysts expressed concern that the EU may have accepted disproportionate terms, especially under pressure to maintain transatlantic trade stability.

French Prime Minister Francois Bayrou described the deal as “a dark day”, while German Chancellor Friedrich Merz warned that the pact would cause “significant” economic disruption for Germany.

“The EUR/USD outlook remains fragile,” analysts at ING stated. “If the pair cannot reclaim the 1.1600 level, we may see it fall below the 1.1500 threshold in the days ahead.”

Pound and Yen Remain Subdued

Sterling also fell on the day, with GBP/USD slipping 0.2% to 1.3335, reaching a two-month low. Analysts anticipate further downward pressure, with some forecasting a dip toward 1.3150 amid continued dollar strength.

Meanwhile, the Japanese yen traded quietly, with USD/JPY slightly lower at 148.41. Market participants expect the Bank of Japan to hold interest rates steady in its upcoming policy meeting, despite recent political uncertainty and trade-driven optimism.

All Eyes on U.S. Data and Fed Decision

The currency market is now looking ahead to key U.S. economic indicators and this week’s Federal Reserve meeting, which could significantly impact near-term dollar strength.

• JOLTS job opening data is expected to offer insights into labour market resilience.
• July’s consumer confidence reading is forecast to rise, buoyed by a strong stock market.
• The July jobs report, due Friday, remains the week’s highlight for investors.

Strong data could further bolster expectations for another rate hike, supporting continued dollar momentum.

What This Means for Trade and Global Markets

The newly signed trade agreement signals a major shift in global trade dynamics. While the U.S. stands to benefit from increased investment and energy exports, the EU faces mounting internal criticism. The imbalance could trigger political fallout and prompt future renegotiations.

Markets may see increased currency volatility as new tariffs take effect and global capital flows adjust. Export-heavy sectors in Europe could face pressure, while U.S. energy and defence companies may gain ground.

Conclusion: Dollar Dominance Returns—But at What Cost?

The latest trade agreement between the U.S. and the EU has delivered a boost to the U.S. dollar, reaffirming its dominance in global markets. However, the euro’s weakness underscores growing unease in Europe over trade imbalances and economic vulnerability.

With the Federal Reserve poised for action and fresh U.S.-China talks on the horizon, the coming weeks could reshape currency trends, trade policy, and investor sentiment. As the dust settles, global markets must now adjust to a new, more divided trading order—one that favours Washington in the short term, but may provoke deeper strategic realignments in the years ahead.

Sources: (Investing.com, BBCmoney.co.uk)