The dollar jumped the most since early May, putting it on track for its first monthly gain this year, bolstered by a long-awaited trade deal between the US and the European Union.
The Bloomberg Dollar Spot Index strengthened nearly 0.8% against global peers on Monday afternoon in New York. While it’s still down significantly from the start of the year, the gauge of the US currency has gained more than 1.4% in July.
The deal, announced over the weekend, sent the dollar higher against all Group of 10 peers, with the euro falling the most, as investors weighed the impact of tariffs on the global economy.
The agreement leaves EU exports facing much higher tariffs than the bloc would charge for imports from the US, with European Commission President Ursula von der Leyen saying the aim is to rebalance a trade surplus with the US. That’s a positive for the dollar, given it reduces inflation risks.
“The EU deal is making it very clear that lasting trade peace will be hard to achieve,” said Aroop Chatterjee, a strategist at Wells Fargo. “It’s a realization that actual tariffs will be negative for the rest of the world growth given these asymmetric ‘deals.’”
Helping ease some of the fears around trade, US and Chinese officials started two days of talks aimed at extending their tariff truce beyond a mid-August deadline.
Investors are now shifting their focus to a busy week that includes the Federal Reserve’s July decision on interest rates, the Treasury Department’s quarterly update of debt-sales plans and a key report on the US labor market. Hanging over it all is an August 1 deadline imposed by President Donald Trump for nations to reach trade deals with the US.
For the Treasuries market, the week began with $139 billion of auctions. The sale of five-year notes drew a yield of 3.983%, slightly higher than trading at the pre-auction deadline. Earlier, a sale of two-year notes showed solid demand.
There was minimal market reaction to the deals with the 10-year yield trading at 4.41% by Monday afternoon in New York.
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