Euro under pressure as US-EU trade deal fails to impress

New Straits Times

5 days ago

SINGAPORE: The euro struggled to recoup its steep losses on Tuesday as investors sobered up to the fact that terms of the trade deal between the US and the European Union favoured the former and hardly lifted the economic outlook of the bloc.
France, on Monday, called the framework trade agreement a "dark day" for Europe, saying the bloc had caved in to US President Donald Trump with an unbalanced deal that slapped a headline 15 per cent tariff on EU goods.
German Chancellor Friedrich Merz said his economy would suffer "significant" damage due to the agreed tariffs.
The euro slid 1.3 per cent in the previous session, its sharpest one-day percentage fall in over two months, on worries about growth and as euro-area government bond yields fell.
The common currency last traded 0.07 per cent higher at US$1.1594.
"It hasn't taken long for markets to conclude that this relatively good news is still, in absolute terms, bad news as far as the near term implications for euro zone growth are concerned," said Ray Attrill, head of FX research at National Australia Bank.
"The deal has been roundly condemned by France while others - including German Chancellor Merz, are playing up the negative consequences for exporters, and with that, economic growth."
The slide in the euro in turn boosted the dollar, which jumped 1 per cent against a basket of currencies overnight.
The dollar held on to gains on Tuesday and knocked sterling to a two-month low of US$1.3349. The yen edged marginally higher to 148.49 per dollar.
The dollar index steadied at 98.67.
"While the US dollar's strength... may reflect the perception that the new US-EU deal is lopsided in favour of the US, the US dollar's strength may also reflect a feeling that the US is re-engaging with the EU and with its major allies," said Thierry Wizman, global FX and rates strategist at Macquarie Group.
Still, Trump said on Monday most trading partners that do not negotiate separate trade deals would soon face tariffs of 15 per cent to 20 per cent on their exports to the United States, well above the broad 10 per cent tariff he set in April.
Elsewhere, the Australian dollar eased 0.05 per cent to US$0.6518, while the New Zealand dollar was little changed at US$0.5972.
The offshore yuan was little changed at 7.1813 per dollar.
Top US and Chinese economic officials met in Stockholm on Monday for more than five hours of talks aimed at resolving long-standing economic disputes at the centre of a trade war between the world's top two economies, seeking to extend a truce by three months.
Apart from trade negotiations, focus this week is also on rate decisions from the Federal Reserve and the Bank of Japan (BOJ).
Both central banks are expected to stand pat on rates, but traders will watch subsequent comments to gauge the timing of their next moves.