Dollar rises against major peers after US-EU trade pact
NEW YORK/LONDON (Reuters) -The dollar rose against the euro and yen on Monday as markets were buoyed by a trade agreement between the U.S. and the EU, which brought some market certainty and averted a global trade war.
U.S. President Donald Trump and European Commission President Ursula von der Leyen reached a framework trade agreement on Sunday, which provides for an import tariff of 15% on EU goods, half the rate Trump had threatened from August 1.
That follows last week's U.S. agreement with Japan, while top U.S. and Chinese economic officials resumed talks in Stockholm on Monday, aiming to extend a truce by three months and keep sharply higher tariffs at bay.
"If you rewind back to early April or Liberation Day, the overarching theme has been selling US assets because of uncertainties due to the new trade regime," said Eugene Epstein, head of structuring for North America at Moneycorp in New Jersey. "I would argue that what you're seeing is some resemblance of return to normalcy."
The dollar rose against the safe-haven Swiss franc, up 1% at 0.80325 francs. It rose against the Japanese yen, up 0.59% at 148.535.
The euro was last down 1.25% at $1.159125, set for its biggest daily loss since mid-May, reversing an initial knee-jerk rise in Asia trade as investors' focus shifted to what an easing in global trade tensions meant for the dollar overall.
The dollar tumbled sharply earlier this year, particularly against the euro, as fears that dramatically higher tariffs on trade with most of its major partners would hurt the U.S. economy caused investors to consider shifting out of U.S. assets.
U.S. stocks were mostly lower but still trading near record highs. The Dow Jones Industrial Average fell 0.3%, the S&P 500 dipped 0.15% and the Nasdaq Composite rose 0.14%.
Normally, the gap between yields on government bonds is a major factor for currency moves, but at present, the euro is significantly higher than the gap between U.S. and euro zone yields would imply.
"If you think about what we expected in the beginning of the year, no one really thought that the euro was going to be so strong. We all thought that, especially post Liberation Day, the dollar will remain strong," said Anthi Tsouvali, multi-asset strategist at UBS Wealth. "We continue to see the dollar weakening."
The euro fell against the yen and sterling, having hit a one-year high on the Japanese currency and a two-year high on the pound at the start of trade.
The dollar strengthened against the pound, which was 0.67% lower at $1.33545.
As concerns subside about the economic fallout from punishing tariffs, investor attention is shifting to corporate earnings and central bank meetings in the United States and Japan in the next few days.
Both the Fed and the Bank of Japan are expected to hold rates steady at policy meetings this week, but traders will watch subsequent comments to gauge the timing of the next moves.
Investors will also be watching to see Trump's reaction to the Fed's decision. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 1.5 basis points to 3.932%, from 3.917% late on Friday.
Trump has been putting the Fed under heavy pressure to make significant rate cuts, and Trump appeared close to trying to fire Powell last week, but backed off with a nod to the market disruption that would likely follow.
In cryptocurrencies, bitcoin fell 0.52% to $118,205.38. Ethereum declined 0.61% to $3,800.90.
Descripti RIC Last U.S. Pct YTD High Low
on Close Chan Pct Bid Bid
Dollar 98.65 97.612 1.08 -9.06 98.68 97.4
Euro/Doll 1.158 1.1738 -1.2 11.95 $1.17 $1.1
Dollar/Ye 148.5 147.66 0.6% -5.6% 148.5 147.
Euro/Yen 172.1 173.35 -0.6 5.48% 173.8 172.
Dollar/Sw 0.803 0.7953 1.01 -11.4 0.803 0.79
Sterling/ 1.335 1.3445 -0.6 6.76% $1.34 $1.3
Dollar/Ca 1.373 1.3697 0.28 -4.48 1.374 1.36
Aussie/Do 0.651 0.6565 -0.7 5.31% $0.65 $0.6
Euro/Swis 0.930 0.933 -0.2 -0.89 0.935 0.93
Euro/Ster 0.867 0.8739 -0.7 4.88% 0.876 0.86
NZ 0.596 0.6016 -0.8 6.65% $0.60 0.59
Dollar/No 10.19 10.147 0.51 -10.2 10.21 10.1
Euro/Norw 11.81 11.921 -0.8 0.42% 11.93 11.8
Dollar/Sw 9.614 9.5035 1.17 -12.7 9.619 9.49
Euro/Swed 11.14 11.164 -0.2 -2.83 11.19 11.1
(Reporting by Chibuike Oguh in New York and Rocky Swift in Tokyo and Alun John in London; Additional reporting by Twesha Dikshit and Kevin Buckland; Editing by Kevin Liffey, Nick Zieminski, Rod Nickel)
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Why the project is raising alarm with its neighbours, and what its construction could mean for China's economy and its green energy it comes to building hydrodams, China's got plenty of experience. It operates two of the world's largest dams. That includes the world's biggest hydrodam – Three Gorges – which opened in central China in 2009. This new mega dam will be built in Tibet, a mountainous region just north of the border with in this bend on the Yarlung Tsangpo River that they call the Mêdog or Motuo Bloomberg energy reporter Dan Murtaugh says the dam is in an area that till recently was very difficult to get is a very, very, very steep drop. The river drops about 2,000 meters over a 50 kilometer stretch as it curves and bends through the mountains of the Himalayas. The county that it's at is up until 2013 didn't even have a highway that connected it. You'd have to walk a day, you know, or, or take a donkey or a horse to get to the river from the closest dams – like the Hoover dam – block the path of a river to create a reservoir. They then release the water, which turns turbines, and generates electricity. This Yarlung Tsangpo dam is they're trying to do here is a little bit more audacious. The idea is to drill a tunnel through the mountains down the steep, steep, steep gradient, and then divert some of the water from going around that big bend and instead go basically just vertically straight down the mountain. That steep gradient that this river moves on really allows you to get that water flowing at high enough speeds to be able to run the turbines to generate the the groundbreaking ceremony earlier this month, Chinese Premier Li Qiang called the Yarlung Tsangpo dam the 'project of the century.' State engineers have said it has the potential to generate as much as 70 gigawatts of electricity. That's enough to power the United three times bigger than the largest power plant in the world right now. It is a national country level type of a generating asset. But China's huge. China has about 4,000 gigawatts of total generating capacity right now. Its peak demand is about 1,450 gigawatts. And so this project isn't going to have a huge world-changing impact on China's power sector. But it does do a couple of different things that are gonna be really beneficial to China's attempt to clean up its energy sector and will help China meet its energy transition goals of peaking emissions by 2030, and then reaching net-zero emissions by still relies on coal-powered plants to back up its more sustainable energy sources like solar and and solar, while cheap and while abundant, only generate when the wind blows and it doesn't really allow them to replace coal plants because at the end of the day you still need, you know, backup generation to make sure that when there's a period where there's no sun out and the wind stops, that people can still turn on their lights. What hydropower does that wind, solar don't do is it's what we call, uh, a dispatchable source. You can use it when it's needed. You can hold it back when it's not. Now hydropower is not perfectly dispatchable. Like if you are using a fossil fuel power plant, a gas or a coal power plant, you can really just sort of turn it off and on as needed. Hydropower, there's still some external things like whether there's a drought, if there's, you know, too much water, there's rain, you know, you have to open the floodgates. It's not perfect, but it is a clean power source that allows the grid to be a little bit more flexible in terms of, you know, generating when it's needed and not just, when the supply's reliability and flexibility are just two of the reasons why building a hydroelectric dam is so expensive. The Yarlung Tsangpo dam will cost $167 billion – more than the International Space Station did. And Dan says, the power it generates will be several times more expensive than any other energy it ends up being about a 70-gigawatt project as we expect it to be, you're talking about $2.4 million per megawatt. Now that compares to, an onshore wind plant right now that China would spend about $600,000 per megawatt on, or a solar power plant that China would spend about $400,000 per megawatt on. China infrastructure projects never lack for lenders, but this is not a white elephant. This is gonna be a hydropower project that sells a lot of electricity, that electricity has value. And so they're gonna be able to go to their lenders and say, listen, over 20, 30 years, we're gonna make a ton of money and we're gonna have the revenue to pay you says there's another reason the Chinese government has greenlit the project – and that's the state of China's way I think about it is, this is less of a hydropower project that's gonna provide some economic stimulus and more of an economic stimulus project that at the end of the day we'll be able to produce some hydropower. We're in this new sort of era where China's economy has been stagnant since COVID. People have been waiting for a kind of stimulus boost to recover it. Sectors like cement, like steel, like construction, those have been particularly hard hurt by the burst of the property bubble. And so you've got this perfect storm here where there's this project that requires a lot of those materials that used to be seen as maybe a little bit risky and, and costly to do, but now it kind of fits this dual need of both providing some economic stimulus for some hurting sectors, while also eventually providing a really, really large source of clean project is estimated to generate 200,000 new jobs and boost China's GDP every year for the next estimated that it's likely bigger than multiple different monetary policy actions that the central bank has taken over the past few years. Uh, so it could really help reflate the economy as they try to do their supply side reform over the coming China plans to transmit all that clean energy -- and what the dam's construction means for simmering tensions between Beijing and New Delhi -- that's after the has been talking about building a mega dam on the Yarlung Tsangpo river for decades. But construction was approved only in December last year. Bloomberg's Dan Murtaugh says that's largely because the challenges to the project are so past conversations I've had with people, they were a little bit, iffy on whether it would ever get built because this is an incredibly remote site. It's very, very far away from any major population centers. And so, you have to transport millions of tons of cement and sand and aggregate and tens of thousands of workers up to this remote project site is in a seismically active area. That means engineers will need to ensure that the dam is strong enough to withstand earthquakes. And then there's the question of how to get the power generated by the dam to the places that need it — Beijing. Shanghai. Hong Kong – They're all thousands of miles away. Which means this isn't just one massive infrastructure project: It's this year when China uh announced this project as part of their work plan for this year, they not only said we're gonna try to develop hydropower in the Yarlung Tsangpo river, but they said we're gonna try to build a power line from Tibet to the Hong Kong, Guangzhou, Shenzhen Bay area to transmit some of that. That itself is gonna be a major undertaking, it's gonna require lots of copper and aluminum and steel itself. Citibank has estimated just the transmission alone could be another 700 billion yuan, about a hundred billion dollars. And so that will also be a difficult domestic considerations in building this mega dam are considerable. But they might be overshadowed by international complications. Downstream from the site, the Yarlung Tsangpo river flows into India, and then into Bangladesh, and is critical to livelihoods in the China first announced back in December that they was gonna go forward with this, the Indian government reached out to the Chinese government. They raised alarm bells. They, uh, an Indian minister said in March that this was part of discussions the country's had in January. The Chinese government clearly thinks that they've told the Indian government, the downstream areas won't be affected. And they think that they've convinced Indian officials that, this is not a project that will harm the relationship between China and India has worsened in recent years after a long history of border disputes in the Himalayan is too early to say how this is gonna develop. Already, India has mooted building its own hydropower station across the border from this plant where they would be able to at least put in a little bit of their own control over the flow of the water and produce their own another complication – Tibet is a highly sensitive area. The region has long endured intense social, security, and religious controls under Beijing's policies. And though China has denied them – allegations of mass labor systems and political repression is a politically sensitive area. It's been in the sort of global crosshairs for decades. Tibet and and the Beijing government have a very long and fraught history. And, you know, frankly, as a foreign journalist, Tibet is an area that I'm not allowed to not just the political situation in Tibet, there are significant concerns around the environmental implications as is a really, really fragile area. It's a really unique, there, you know, you have this dry mountain air coming down from the Himalayas, meeting up with this, humid, uh, warm air coming up from the Indian Ocean. It's one of, you know, the most uniquely biodiverse spots in the world, and the idea of bringing tens of thousands of workers plus however many, tens if not hundreds of thousands more, will sort of pop up to create like the restaurants and food trucks and bars and karaoke and stuff to, to service these people. The idea that there's gonna be all of this human activity in a place that's been remote for most of its history. You hope for the best, but human history has not been very kind to planet Earth. And you just have to wonder if they're gonna be able to, to reign in people from not damaging permanently this really unique area.
