The U.S. dollar witnessed a notable surge following the announcement of a trade agreement between the United States and the European Union. The deal includes a 15% tariff on European imports in exchange for substantial European investments in the U.S. This development boosted investor confidence in the greenback, especially as markets brace for the upcoming Federal Reserve meeting and growing expectations that the central bank may maintain its hawkish monetary stance.
In contrast, the euro came under heavy pressure, posting sharp losses amid doubts over how beneficial the deal would be for the EU. Pessimistic remarks from several European officials added further strain on the common currency, particularly after it broke through key technical support levels a move that could pave the way for further declines unless new positive catalysts emerge.
Investors are closely watching a series of key economic indicators this week, most notably the Job Openings and Labor Turnover Survey (JOLTS) and the Consumer Confidence Index, followed by Friday’s non farm payrolls report. These figures will be crucial in determining the dollar’s direction, as any strong data would likely reinforce the upward trend. While the Fed is not expected to make any surprise moves regarding interest rates, market focus remains on the tone of its statement and future policy guidance.
Across Asia, currencies showed mixed performance. The South Korean won continued to weaken, while the Australian dollar remained under pressure amid waning risk appetite. The Singapore dollar recorded modest gains, whereas the Chinese yuan held steady amid ongoing U.S. China talks that have yet to yield tangible progress.
Despite recent gains, analysts suggest the dollar’s bullish momentum could soon lose steam. Bank of America noted that the AUD/USD pair is showing clear signs of continuing its upward movement, particularly if U.S. jobs data falls short of expectations. Any downside surprises in the numbers could fuel speculation of a potential rate cut, possibly weighing on the dollar in the short term.
Nonetheless, there are no clear signs of a broad trend reversal. The U.S. economic fundamentals including growth and employment remain relatively supportive, suggesting that any pullback in the dollar is more likely to be a “limited correction” rather than the start of a broader downtrend. Ultimately, the market’s bets will remain focused on the Fed’s policy stance rather than trade deals.
Rating agency Fitch affirmed that the recent hike in U.S. tariffs on European imports from 1.2% to 15% will not directly result in a downgrade of EU sovereign ratings. However, the agency warned that this move could add to credit pressures on economies already grappling with structural vulnerabilities.
Ed Parker, a senior analyst at Fitch, explained that the new tariffs were among the anticipated scenarios and thus do not constitute an economic or ratings shock. However, sovereign creditworthiness is evaluated on a broader set of factors beyond trade including public debt, current account balances, and fiscal policies making tariffs a contributing factor, but not a decisive one.
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