Euro weakens as markets rally following EU-US trade deal
The euro fell against the dollar in early morning trading, as currency markets focused on the risks to the European economy from the EU-US trade deal despite a positive reaction from global stock markets.
The currency was down 0.5 per cent against the dollar at $1.169, wiping away gains made last week after Trump’s “big win” with the European Union, which will bring “stability” to the EU following sluggish economic growth.
The deal will help the European bloc swerve damaging 30 per cent tariffs that had been due to come into force in August – but the new 15 per cent rate remains well above that faced by exporters before Trump’s sweeping “Liberation Day” tariffs were first announced in April.
The euro remained subdued, trading 0.1 per cent lower against the dollar at $1.34 and weakened 0.3 per cent against the pound.
No euphoria for the euro
Kathleen Brooks, research director at XTB, said: “Interestingly, the euro is weakening today and is not benefitting from the trading euphoria.
“The euro is one of the weakest currencies in the G10 FX space on Monday, as the dollar is stronger across the board at the start of the week.”
“A faltering euro could be a sign that FX traders are less enthusiastic about the trade agreement compared to stock traders. It is also a symbol of the shifting trade relationship between the US and Europe, with the rebalancing potentially hurting the EU more than the US, as it attracts tariff levies and investment flows from the currency bloc.”
Last week the European Central Bank warned that “the environment remains exceptionally uncertain, especially because of the trade disputes”, with the deal now removing both uncertainty and the risk of a trade war.
A meeting in Scotland
US President Donald Trump and European Commission President Ursula von der Leyen met in Scotland to discuss trade conditions during his five day private visit, before unveiling the deal at his Turnberry golf course in South Ayrshire, after months of stand off.
The agreement will put a 15 per cent tariff on most imports from the EU, compared to the original 30 per cent that had been threatened, across a range of products. The US’ 50 per cent tariff on steel and aluminium will remain according to the President, but only above certain quotas.
However, some products will not face any tariffs, including aircraft and plane parts, some chemicals and certain agricultural products. A deal on alcohol is yet to be struck with both France and the Netherlands in particular seeking tariff exemptions for their beer and wine industries.
Von der Leyen hailed the deal, saying it would bring stability for both allies, who account for nearly a third of global trade, after “tough negotiations”.
Trump added, “It’s going to bring us closer together”.
Trump’s big win
While both sides can view this as a victory, with the EU avoiding the initial 30 per cent threat, the US came out of the deal with hundreds of billions of dollars of investment now due to come to the US.
Trump said the EU would boost its investment in the US by $600bn (£446bn), including American military equipment, and spend $750bn on energy.