New York — The dollar hit a one-month high versus the euro on Tuesday in the wake of trade agreements between the US and some of its major trade partners, even as markets await interest decisions from the Federal Reserve.
US President Donald Trump struck his biggest trade deal yet with the EU on Sunday, which imposes a 15% import tariff on most EU goods and includes $600bn of EU investments into the US. That deal tops a $550bn deal signed with Japan last week that includes a 15% reciprocal tariff.
Investors are also eyeing ongoing trade discussions between the US and China. Top economic officials met in Stockholm on Monday on Tuesday in a bid to resolve long-standing economic disputes at the centre of a trade war.
The euro was down 0.44% against the dollar at $1.1538, hitting its lowest level since June 23. The single currency had dropped 1.29% in the previous session, its steepest one-day decline since mid-May. It is poised to record its first monthly loss against the dollar this year.
“After falling sharply in the first half of the year, the dollar began July with a bounce and I think it’s mostly short covering, and the issue is whether this is a trend change or an overdue technical correction,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.37% to 98.98, rising to its highest level since June 23.
The index is set to record its first month of gains this year.
“The market had a sigh of relief that the tariffs, at the least the plan announced with Japan and the EU and the likely 90-day extension with China, helped remove downside tail risk,” Chandler said.
Several EU leaders have criticised the trade agreement reached with the US.
German Chancellor Friedrich Merz said his economy would suffer significant damage due to the agreed tariffs. France called the agreement a “dark day” for Europe.
Markets expect the Fed to leave interest rates unchanged at the end of its monetary policy meeting on Wednesday. Trump has repeatedly called for the Fed to cut rates.
US treasuries slipped on the session, with the yield on benchmark US 10-year notes fell 6.2 basis points to 4.358%.
“Ahead of (Wednesday’s) Fed decision, we might get some consolidation. People are concerned about a possible dissent from at least one of the governors, maybe it’s (Christopher) Waller or (Michelle) Bowman,” Chandler added.
The Bank of Japan also is likely to hold off raising interest rates on Thursday after the Japanese trade agreement with the US last week. The SA Reserve Bank is expected to cut rates by 25 basis points.
The dollar was down 0.03% to 148.48 against the Japanese yen. Against the Swiss franc, the dollar strengthened 0.47% to 0.807 francs.
Reuters
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