Key Trade Developments and Their Impact on the Currency Market
The US dollar reached a one-month high against the euro on Tuesday, following a series of trade agreements between the United States and its major partners. Meanwhile, investors are keeping a close eye on ongoing trade talks between the US and China.
US Trade Agreements
President Donald Trump sealed the largest trade deal to date on Sunday, imposing a 15% tariff on most European Union (EU) imports. The agreement also includes $600 billion in EU investments in the US. This deal adds to the one signed with Japan last week, valued at $550 billion, also with a 15% tariff.
US-China Trade Talks
US and Chinese officials agreed on Tuesday to seek an extension of their 90-day tariff truce, following two days of talks in Stockholm aimed at calming the escalating trade war between the world’s two largest economies, which threatens global growth.
Impact on the Euro and Other Currencies
The euro fell 0.39% to $1.154775, hitting its lowest level since June 23. The single currency dropped 1.29% on Monday, its largest daily decline since mid-May. The euro is on track to record its first monthly loss against the dollar this year.
“After a sharp decline in the first half of the year, the dollar began July with a rebound, primarily due to short-position coverage, and the question is whether this represents a trend change or a technical correction,” said Marc Chandler, of Bannockburn Global Forex.
The US dollar index has recorded its first month of gains this year (2.10%), despite the greenback’s recovery, it has lost 8.38% year-to-date when compared to a basket of six currencies.
Market Focus on Fed and BoJ Meetings
Markets are now looking ahead to Fed and Bank of Japan meetings, expected to keep rates stable on Wednesday and Thursday, respectively.
The US dollar dipped 0.05% against its Japanese counterpart, at 148.465 yen. Against the Swiss franc, the dollar appreciated 0.28%, trading at 0.806 units.
Mexican Peso Shows Moderate Gain
The Mexican peso ended with a slight gain against the US dollar on Tuesday. The local currency advanced slightly in a market cautious about the Fed’s policy meeting and awaiting economic indicators.
The spot exchange rate is at 18.7509 pesos per dollar, which, compared to Monday’s official data from Banco de México (Banxico) at 18.7634 pesos, shows a marginal increase of 1.25 centavos or 0.07%.
The currency market is preparing for the Fed’s decision, which is expected to maintain the rate.
Key Questions and Answers
- What are the recent trade agreements signed by the US? The US has recently signed a significant trade agreement with the EU, imposing a 15% tariff on most imports. Another deal was reached with Japan, valued at $550 billion, also with a 15% tariff.
- How are these trade developments affecting the currency market? The US dollar has reached a one-month high against the euro due to these trade agreements. The euro has fallen, and the dollar index has recorded its first month of gains this year.
- What are the upcoming events that markets are focusing on? Markets are closely watching Fed and Bank of Japan meetings, expecting them to maintain stable interest rates.
- How has the Mexican peso performed recently? The Mexican peso has shown a moderate gain against the US dollar, with a slight advance in a cautious market awaiting Fed policy and economic indicators.
