The euro declined in the European market on Tuesday against a basket of global currencies, deepening its losses for the fourth consecutive day against the US dollar and recording its lowest level in two weeks, as investors interpreted the terms of the trade agreement between the European Union and the United States as favoring the US economy.
Following a hawkish meeting by the European Central Bank last week, the probability of a European interest rate cut in September has declined. In order to reprice those expectations, investors await the release of several key economic indicators from Europe — especially inflation levels for July.
Price Overview
• EUR/USD exchange rate today: the euro fell against the dollar by 0.1% to $1.1575 — the lowest since July 17 — from today’s opening price of $1.1588, with a high of $1.1599.
• The euro closed Monday’s session down by 1.3% against the dollar, marking its third consecutive daily loss and the largest one-day loss since May 12.
EU–US Trade Agreement
During their meeting in Scotland on Sunday, US President Donald Trump and European Commission President Ursula von der Leyen announced a new trade agreement that includes the following:
• The agreement imposes US tariffs on imports from Europe — including cars, pharmaceuticals, and semiconductors — at a rate of 15%, starting from August 1.
• A selected group of US goods was fully exempted from European tariffs under a “no-reciprocity” framework. These include aircraft parts, semiconductor equipment, some generic medicines, chemicals, and strategic agricultural products.
• Tariffs on steel and aluminum will remain at 50% for now, with an agreement to possibly replace them later with a quota system.
• The European Union committed to injecting up to $600 billion in investments into the US economy during Trump’s second term.
• The EU also pledged to purchase approximately $750 billion worth of US energy products, including liquefied natural gas and nuclear coal, over the next three years.
• Trump noted that the deal aims to reduce the US trade deficit with the EU, which reached $235.6 billion in 2024.
• Von der Leyen described the agreement as providing “stability and predictability” for both sides, with a focus on “rebalancing” the trade relationship.
European Reactions
France on Monday described the trade framework agreement as a “black day” for Europe, saying that the EU had capitulated to President Donald Trump with an unbalanced deal.
German Chancellor Friedrich Merz stated that his economy would suffer “significant” harm from the agreed-upon tariffs.
Opinions and Analysis
• Ray Attrill, Head of FX Strategy at National Australia Bank, said: It didn’t take long for markets to conclude that this relatively good news is still, in absolute terms, bad news regarding the short-term impact on eurozone growth.
• Attrill added: The French have condemned the deal harshly, while others — including Chancellor Merz — may be overstating the negative consequences for exporters and, by extension, for economic growth.
European Interest Rates
• The European Central Bank last week kept key interest rates unchanged at 2.15% — the lowest level since October 2022 — after having cut them in the previous meeting for the seventh time in a row.
• The ECB opted to pause its monetary easing, awaiting clarity on the future of US trade relations.
• ECB President Christine Lagarde said after the policy meeting: “We are in a wait-and-see mode.” She added that the eurozone economy has shown resilience despite global economic uncertainty.
• According to Reuters sources, a clear majority at the ECB meeting expressed a preference to keep interest rates unchanged in September, marking the second consecutive meeting with such sentiment.
• Money market pricing for a 25 basis point ECB rate cut in September has dropped from 50% to below 30%.
• To reprice those expectations, investors will closely watch upcoming economic data from Europe, as well as comments from ECB officials.
