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The US dollar surged ahead on Monday, fueled by its latest trade accord.
The enthusiasm and relief that greeted Sunday’s last minute trade deal between the European Union and the United States proved fleeting on Monday. Yesterday, European exporters led a chorus of disapproval from the continent that led to a half-cent fall for the euro against the pound and an even larger fall against the US dollar.
A mixed day for the pound saw it strengthen against the euro but fail to erase the half a cent it lost to US dollar as news of the trade deal broke. The dollar meanwhile enjoyed its best day since May, which came after the latest deal with a major economy reduced the risk of a full-scale trade war.
There was a lot to pick over when it came to trade. In short, markets think that the high cost of doing business across the Atlantic will weigh on growth in Europe. European stock markets began Monday with a frenetic rally, but much like with the euro, this soon gave way to anxiety as criticism rolled in from various political parties. Even Spanish prime minister Pedro Sanchez brought himself to back the deal “without any enthusiasm”.
Donald Trump’s time in Scotland gave Sir Keir Starmer a chance to travel to Turnberry in an effort to put the final touches on the UK’s trade arrangements. There was no immediate payoff, but government officials remain hopeful that they can secure tariff exemptions for a number of key industries.
With the economic calendar light, focus was very much trained on the little corner of the Scottish coast suddenly transformed into the world’s diplomatic Mecca. President Trump said he planned to lay out 20% tariffs on all nations that his government has yet to reach a trade agreement with.
A more typical diet of data resumes today, as the eurozone heads into a busy stretch of economic growth figures.
GBP: Seeking a breakthrough
Sterling could not build much momentum to start the week and Keir Starmer headed to Scotland in an attempt to secure a boost. With the economy seemingly moving in the wrong direction, it may take a breakthrough on trade to wipe the slate clean for the pound.
GBP/USD: the past year
EUR: Steamrollered
Once the dust had settled, the general consensus was that the EU had received a pretty flimsy deal from its trade negotiations with the United States. Due to the high barriers to trade and lack of substantive concessions from Washington, the euro fell as markets bet that the deal would weigh on growth and increase the likelihood of further interest rate cuts.
GBP/EUR: the past year
USD: Tariff victory by stealth
And just like that, the United States has agreed trade deals with every meaningful partner left on its list. Was this victory for President Trump? On the face of it the answer is yes, although recent events have given rise to a raft of structural challenges that may prove hard for the US dollar to shake.
EUR/USD: the past year
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