The U.S. dollar rose for a second day on Tuesday, buoyed by a newly inked trade agreement between the United States and the European Union. Meanwhile, the euro continued its slide as investors reassessed the implications of the deal and looked ahead to the Federal Reserve’s policy meeting.
By 04:10 ET (08:10 GMT), the Dollar Index—which measures the dollar’s strength against a group of six major currencies—climbed 0.2% to 98.607, extending Monday’s advance.
Greenback Strengthens on Trade Optimism
Optimism over the U.S.-EU trade agreement gave the greenback a boost. The deal includes a 15% import tariff on EU goods, along with significant European investment commitments.
The European Union has pledged to funnel roughly $600 billion into the U.S. economy while stepping up its imports of American energy and military hardware, further reinforcing transatlantic economic ties.
With the U.S.–China negotiations set to resume in Sweden, markets are also monitoring whether the world’s two largest economies can extend their current trade ceasefire.
Investors are turning their attention to a flurry of incoming U.S. economic data and the Federal Reserve’s two-day meeting, which kicks off today.
Key indicators due include the JOLTS job openings survey, often used to gauge labor market strength, and the Conference Board’s consumer confidence index, both of which will set the tone ahead of Friday’s closely watched July employment report.
“Ahead of tomorrow’s FOMC meeting, which could also prove dollar positive, today sees the release of US JOLTS job opening data and also July consumer confidence. The former is expected to show some stability (at around the 7500k mark) and the latter is expected to pick up in line with the strong stock market,” noted analysts at ING.
Euro Under Pressure Amid Criticism of Trade Terms
The euro continued to lose momentum, with EUR/USD falling 0.3% to 1.1559. Monday’s 1.3% slide marked its steepest single-day drop in over two months.
Political backlash in Europe is mounting. French Prime Minister Francois Bayrou condemned the trade pact as “a dark day,” while German Chancellor Friedrich Merz cautioned it could inflict “significant” harm on Germany’s economy.
“We have been arguing for some time that EUR/USD could come under pressure this quarter, and arguably, EUR/USD is now in a more fragile position than we had been expecting ahead of a big week for event risk,” said ING.
“EUR/USD price action remains very poor. And if it can’t rally above 1.1600/1625 on any good news today, it could well take out support – both at 1.1555 and 1.1500.”
The British pound also stumbled, with GBP/USD dipping 0.2% to 1.3335, falling to a two-month low.
“There is a technical case now for GBP/USD to trade down to the 1.3150 area. That is our preference in a week where we think the event risks are skewed to the positive for the dollar,” ING added.
Yen Stable as Japan Awaits BOJ
In Asian markets, the Japanese yen showed little movement, with USD/JPY easing 0.1% to 148.41 after modest gains on Monday.
The Bank of Japan is expected to leave interest rates unchanged at Thursday’s meeting. While the global trade landscape has calmed, domestic politics remain unsettled following the ruling coalition’s defeat in upper house elections. Speculation continues over whether Prime Minister Shigeru Ishiba might resign.
Still, some analysts believe the recent U.S.-Japan trade deal could give Japanese policymakers more room to maneuver later in the year.
Elsewhere, AUD/USD declined by 0.3% to 0.6503, extending its losses, while the Chinese yuan was unchanged, with USD/CNY steady at 7.1777.
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