The US dollar rose again on Tuesday, while the euro continued to decline after the conclusion of a trade agreement between the US and the EU, ahead of this week’s Federal Reserve meeting.
As of 08:10, the dollar index, which tracks the performance of the US currency against a basket of six other currencies, rose 0.2% to 98.607, continuing the previous session’s gains.
The dollar is back in favour
The US currency is once again in demand following the announcement of a trade deal between the US and the European Union, which provides for a 15% import tariff on goods from the EU.
The EU also agreed to invest around $600 billion in the US and significantly increase purchases of American energy and military equipment.
Attention is now turning to talks between the US and China in Sweden, where, according to media reports, the world’s two largest economies may decide to extend their trade truce.
With trade tensions appearing to have subsided, attention is now focused on the flow of economic data expected this week, as the Federal Reserve begins its latest two-day meeting.
Among Tuesday’s key indicators will be the job openings and labour turnover report, a measure of labour demand, known as the JOLTS survey.
The data is expected to provide insight into the state of the US labour market ahead of Friday’s important July employment report.
In addition, the Conference Board’s consumer confidence index for July is due to be released, which economists predict will show an increase compared to the previous month.
“Ahead of tomorrow’s FOMC meeting, which could also prove positive for the dollar, today will see the release of US JOLTS job openings data and the consumer confidence index for July. The former is expected to show some stability, while the latter should rise in line with the strong stock market,” ING analysts noted in their commentary.
The euro continues to retreat
In Europe, the EUR/USD fell 0.3% to 1.1559, with the single currency continuing its decline after falling 1.3% in the previous session, its sharpest one-day percentage drop in more than two months.
Fears are growing that the European Union has accepted the worst part of the trade agreement, with French Prime Minister François Bayrou calling it a “black day” and German Chancellor Friedrich Merz saying that his economy would suffer “significant” damage.
“We have been arguing for some time that EUR/USD could come under pressure this quarter, and perhaps EUR/USD is now in a more vulnerable position than we expected ahead of an eventful week,” ING noted.
“The EUR/USD price dynamics remain very weak. And if it fails to rise above 1.1600/1625 amid good news today, it may well break through support levels at both 1.1555 and 1.1500.”
GBP/USD fell 0.2% to 1.3335, with the pound sterling falling to a two-month low.
“There are now technical reasons for GBP/USD to fall to 1.3150. This is our preferred scenario for the week, when we believe the risks are skewed to the upside for the dollar,” ING added.
Yen calm ahead of Bank of Japan meeting
Elsewhere, USD/JPY traded 0.1% lower at 148.41, showing calm dynamics after rising in the previous session.
The Bank of Japan is expected to keep interest rates unchanged on Thursday amid global trade uncertainty and domestic political changes, but analysts say the trade agreement between the US and Japan signed last week could give policymakers some room to raise rates later this year.
However, investor sentiment in Japan remains cautious amid ongoing political uncertainty following the ruling coalition’s defeat in last week’s upper house elections and speculation about the possible resignation of Prime Minister Shigeru Ishiba.
AUD/USD fell 0.3% to 0.6503 after dropping 0.7% on Monday, while USD/CNY traded unchanged at 7.1777.
