The United States Dollar, following mixed performance last week, is trading decidedly on the front foot against its G10 peers and emerging-markets currencies this morning.
Overview
As of this morning the United States and the European Union have struck a trade deal that imposes a 15% tariff on most European goods, which is half the rate of the levy threatened by the US should a deal not be struck before the Administration’s August 1st deadline. The US and China are also meeting today in Sweden, likely to extend their 90-day trade “truce” another 90 days, originally set to expire August 12th.
The headline of such a trade deal between the EU and the US is boosting stock prices close to all-time highs, and European equities have also been ebullient through the session. The EU has also pledged to import $750 billion of US-produced energy, invest into the US economy some separate $600 billion, and buy “vast quantities” of US-made weapons. US goods are to enter the European market at a tariff rate of 0%. President Trump, presenting the deal in Scotland with European Commission head Ursula Von Der Leyen, praised the agreement as ‘the biggest deal for the EU ever.” The effective tariff rate for the EU will now be close to 16%, just two percentage points below the effective tariff rate without a trade deal, and with a great deal more investment into the US economy.
The economic calendar, not to be outdone, is also jam-packed this week and headlined by an interest rate decision from the Federal Reserve Wednesday afternoon. Though it’s all but guaranteed Powell & co. will not cut interest rates this week, traders are hoping that some of the uncertainty surrounding tariff-related inflation changes has cleared enough for the central bank to give forward guidance on September’s meeting. The PCE deflator index is also due out Thursday morning, and non-farm payrolls for July will be released Friday, promising public reactions from various Fed officials after the blackout period for this meeting ends.
What to Watch This Week…
- JOLTS Job Openings, Tuesday 8:30AM
- FOMC Interest Rate Decision, Wednesday 2PM
- PCE Deflator Index, Thursday 8:30AM
- Non-Farm Payrolls JUN, Friday 8:30AM
- Monex USA Online is always open
The complete Economic Calendar can be found here.
EUR ⇓
The single currency is the worst performer in the G10 this morning following the announcement of the EU-US trade deal, slipping three quarters of a percent versus the Buck at the US open today. Though EUR initially popped on the news, traders have begun to assess concerns over the economic impact of tariff rates that are admittedly still high, with some strategists going so far as to say that the EU is the clear loser of this deal. With little in the way of concrete data for the Eurozone this week, EURUSD will likely be driven by headlines and data out of the US, which could spell further weakness for EUR as month-end trading rolls in.
MXN ⇓
Mexican Peso and its emerging-market peers are sliding this morning, with MXN trading roughly half a percent weaker against USD than at Friday afternoon’s close. An overall bid for the Dollar seems to be driving the move, typical as markets assess month-end cash needs, but risk sentiment also isn’t getting the boost from a major trade deal one might typically expect. Mexico and Canada are now the only two major economies that have not reached a new trade deal with the US ahead of the August 1st deadline, but protections from the USMCA still apply for those two economies. Price action is likely to be driven by US headlines this week.
