Euro Declines Sharply after Trade Deal, Dollar Rally
The euro extended its decline to $1.14—the lowest level since mid-June—under pressure from a stronger dollar, as traders reacted to the Fed’s latest policy decision after EU and US sealed trade deal.
The market continues to react negatively, exiting positions in the euro after EU-US deal put the Eurozone on edge—with negative sentiment from the German Chancellor.
The U.S.-EU trade agreement imposes 15 percent tariffs on most European imports, avoiding the 30 percent levies that President Donald Trump had threatened. Critics argue the deal disproportionately favors the United States.
The U.S. dollar index is up 2.1% this month. If it keeps pace, it will also mark its best July since 2019, when it closed the month up 2.48%. The shift in sentiment comes after the dollar declined broadly against all major currencies in the first half of 2025.
The Fed kept the federal funds rate unchanged as expected, but Chair Powell noted that no decisions had been made regarding September, and his hawkish tone dampened expectations for a rate cut at the next meeting.
Fresh figures showed the Eurozone economy grew a modest 0.1% in Q2, slowing sharply from 0.6% in Q1 but still exceeding expectations of no growth. However, the data revealed asymmetries, with GDP in Germany and Italy contracting by 0.1%, while France and Spain recorded expansions.
In addition, investors remain concerned that the recently announced US-EU trade agreement disproportionately benefits the US. Expectations for ECB rate cuts have also been pushed further out.
Markets now assign a 90% probability of a 25 bps cut by March 2026, while the likelihood of a move in December has fallen to 30%. The euro’s recent falls following the U.S.-EU trade deal are likely to prove temporary, Monex Europe analysts say in a note.
Eurozone economic growth looks set to recover, supporting the euro over the medium term, they say. This view is bolstered by earlier data that showed the French economy grew by a better-than-expected 0.3% in the second quarter. The euro falls 0.2% to $1.1522 after hitting a one-month low of $1.1515 Tuesday. Oil Prices Fall as Trump Sets 10-Day Deadline for Russia
