Dollar dithers as investors await more tariff clarity
The yen mostly held on to gains from the previous session following results from a weekend upper house election in Japan that proved no worse than what had already been priced in, with focus now on how quickly Tokyo can strike a trade deal with Washington and Prime Minister Shigeru Ishiba's future at the helm.
With little over a week to go before August 1, U.S. Treasury Secretary Scott Bessent said on Monday the administration is more concerned with the quality of trade agreements than their timing.
Asked whether the deadline could be extended for countries engaged in productive talks with Washington, Bessent said President Donald Trump would make that decision.
Uncertainty over the eventual state of tariffs globally has been a huge overhang for the foreign exchange market, leaving currencies trading in a tight range for the most part, even as stocks on Wall Street have scaled fresh highs.
"Nothing that happens on August 1 is necessarily permanent, so long as the U.S. administration remains willing to talk, as was indicated in Trump's letters from two weeks ago," said Thierry Wizman, global FX and rates strategist at Macquarie Group.
The euro eased slightly to $1.1692. The European Central Bank is also in the mix this week, although it is not expected to adjust euro zone interest rates.
A deal between the European Union, which could face 30% tariffs from August 1, and the U.S. remains elusive. EU diplomats said on Monday they were exploring a broader set of possible counter-measures given fading prospects for an agreement.
"The Trump administration has shown little tolerance for retaliatory measures, and there is a risk this could spiral (even if temporarily) into a tit-for-tat tariff escalation. The euro's ability to maintain preference over the dollar amid tariff tensions will depend on the extent of any escalation and whether the EU emerges as a relative loser while other countries secure significant deals with the U.S.," ING strategist Francesco Pesole said.
Separately, the ECB said in a survey on Tuesday that loan demand from euro zone companies improved last quarter and is expected to pick up in the current quarter, in spite of the threat of tariffs and higher geopolitical tensions.
Against a basket of currencies, the dollar rose 0.1% to 97.91, having fallen 0.6% on Monday.
Also weighing on investors' minds were worries about Federal Reserve independence, given Trump has repeatedly railed against Chair Jerome Powell and urged him to resign because of the central bank's reluctance to cut interest rates.
"Our base case remains that solid U.S. data and a tariff- driven rebound in inflation will keep the FOMC on hold into 2026, and that the resulting shift in interest rate differentials will drive a continued rebound in the dollar in the next few months," said Jonas Goltermann, deputy chief markets economist at Capital Economics.
"But that view is clearly at the mercy of the White House's whims."
The yen remained in focus on Tuesday, trading a touch weaker on the day at 147.64, having gained 1% on Monday following the weekend election and a public holiday.
"The initial relief for the yen that the ruling coalition did not lose even more seats and that Prime Minister Ishiba plans to hang on to power is likely to prove short-lived," said MUFG senior currency analyst Lee Hardman.
"The pick-up in political uncertainty in Japan could complicate reaching a timely trade deal with the U.S., posing downside risks for Japan's economy and the yen."
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18 minutes ago
- Reuters
EU's pledge for $250 billion of US energy imports is delusional
LAUNCESTON, Australia, July 28 (Reuters) - There are strong echoes of Donald Trump's failed trade deal with China from his first term as U.S. president in the framework agreement reached with the European Union. Trump and EU Commission President Ursula von der Leyen announced the deal for a 15% tariff on U.S. imports of EU goods at the U.S. leader's golf course in Scotland on Sunday. But more important than the 15% tariff rate was the apparent commitment by the EU to massively ramp up energy imports from the United States. The agreement calls for EU imports of U.S. energy, which currently are mainly crude oil and liquefied natural gas (LNG), of $250 billion a year for three years. This is a delusional level of imports that the EU has virtually no chance of meeting, and one that U.S. producers would also struggle to supply. Even if the EU did manage somehow to boost its energy imports from the United States to the $250 billion a year mark, it would also prove massively disruptive for energy flows around the rest of the world. The numbers show the scale of the challenge. The 28 members of the EU imported 3.38 billion barrels of seaborne crude oil in 2024, according to data compiled by energy analysts Kpler. Assuming the 2025 volume stays the same and the price paid per barrel averages around $70, this means the EU will pay about $236.6 billion for its crude. The EU's imports from the United States were 573 million barrels in 2024, which if replicated this year would be valued at around $40.1 billion. For LNG, the EU imported 82.68 million metric tons in 2024, which would have cost around $51.26 billion assuming an average price of around $12 per million British thermal units (mmBtu). Imports of the super-chilled fuel from the United States were 35.13 million tons in 2024, worth about $21.78 billion. The EU also buys coal from the United States, the bulk being higher-value metallurgical coal used to make steel. Total EU imports of metallurgical coal in 2024 were worth $6.72 billion, assuming an average price of $200 per ton, with those from the United States valued at $2.67 billion. Putting together the value of EU imports of U.S. crude oil, LNG and metallurgical coal gives a 2024 total of around $64.55 billion. This is about 26% of the $250 billion the EU is supposed to spend on U.S. energy a year under the framework agreement. If the EU did ramp up its imports of U.S. crude, LNG and metallurgical coal to $250 billion, it would account for 85% of its total spending on those energy commodities. The United States exported 1.45 billion barrels of crude in 2024, according to Kpler, which would be worth $101.5 billion at a price of $70 a barrel. U.S. shipments of LNG were 87.05 million tons in 2024, which would be worth about $54 billion at an average price of $12 per mmBtu. The U.S. exported 51.53 million tons of metallurgical coal in 2024, worth $10.3 billion at an average price of $200 a ton. Putting together the value of all three energy commodities gives a total of $165.8 billion, meaning that even if the EU bought the entire volume it would still fall well short of the $250 billion. The scale of the delusion probably exceeds what Trump and China agreed in their so-called Phase 1 trade deal in December 2019, under which China was supposed to buy $200 billion of additional U.S. energy by the end of 2021. The reality is that China never even came close to buying that level, and its imports of U.S. energy didn't even reach what they were before Trump launched his first trade war in 2017. There are a few caveats when looking at the framework agreement between Trump and Von der Leyen. The first is that not all the details are known and the $250 billion of energy is also said to include nuclear fuel, although this will only be a small value even if included. The second is the deal will probably include refined fuels, with U.S. exports to the EU of products such as diesel, being almost 110 million barrels in 2024, worth about $10.9 billion assuming a price of $100 a barrel. But it's still clear that the commitment to buy $250 billion in U.S. energy is completely unrealistic and unachievable. The smart people in the room must know this, begging the question as to why agree to what is obviously a ridiculous number? What happens when the inevitable failure is realised? Perhaps the EU is hoping for the same outcome as China did with the first trade war with Trump in 2019. Run down the clock, talk nice, and hope the next U.S. president is easier to deal with. Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis of everything from swap rates to soybeans. Markets are moving faster than ever. ROI can help you keep up. Follow ROI on LinkedIn, opens new tab and X, opens new tab. The views expressed here are those of the author, a columnist for Reuters.
Reuters
18 minutes ago
- Reuters
India's equity benchmarks set to open near one-month low
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Reuters
18 minutes ago
- Reuters
Gold falls to near two-week low after US, EU agree to tariff deal
July 28 (Reuters) - Gold prices fell to their lowest level in nearly two weeks on Monday, as a framework trade agreement between the United States and European Union ahead of the August 1 tariff deadline boosted appetite for risk assets. Spot gold was down 0.1% at $3,332.18 per ounce, as of 0208 GMT, after touching its lowest level since July 17. U.S. gold futures edged 0.1% lower to $3,331.60. The U.S. struck a framework trade agreement with the European Union on Sunday, imposing a 15% import tariff on most EU goods - half the threatened rate - and averting a bigger trade war between the two allies that account for almost a third of global trade. However, the agreement left key issues unresolved, including tariffs on spirits. The agreement eased transatlantic trade tensions, putting pressure on gold, said Jigar Trivedi, a senior commodity analyst at Reliance Securities, adding that it also softened the dollar index, which provided some cushion to bullion. The U.S. dollar index (.DXY), opens new tab eased 0.1%, making greenback-priced bullion more affordable for overseas buyers. Risk sentiment improved following the agreement, with European currencies and U.S. stock index futures trading higher. Meanwhile, senior U.S. and Chinese negotiators are set to meet in Stockholm later in the day to address long-standing economic disputes, seeking to extend a truce that has prevented higher tariffs. "In the short term, we don't expect gold to experience wild swings. Investors are turning their focus to a pivotal week for U.S. monetary policy and economic data," Trivedi said. The Federal Reserve is expected to maintain its benchmark interest rate in the 4.25%-4.50% range after its two-day policy meeting concludes on Wednesday. U.S. President Donald Trump said on Friday he had a positive meeting with Powell, suggesting the Fed chief might be inclined to lower interest rates. Spot silver was up 0.2% at $38.23 per ounce, while platinum gained 0.6% to $1,409.50 and palladium rose 0.6% to $1,227.76.
