- EUR/USD declines below the 1.1100 threshold as the US Dollar strengthens following an agreement between the United States and China to reduce tariffs by 115% for a period of 90 days.
- The temporary trade de-escalation between the US and China is anticipated to moderate heightened consumer inflation expectations.
- ECB’s Isabel Schnabel indicates no immediate necessity for further interest rate reductions.
The EUR/USD pair experienced a sharp decline below the 1.1100 level during European trading hours at the start of the week. This key currency pair is encountering significant selling pressure as the US Dollar (USD) gains momentum. The rally in the USD follows a joint announcement from the United States (US) and China, detailing a larger-than-anticipated reduction in tariffs imposed back in April, slated to last for 90 days. The market’s positive reaction suggests a renewed optimism regarding global trade prospects.
The US Dollar Index (DXY), a measure of the Greenback’s strength against a basket of six major currencies, has surged, approaching the 101.60 mark. This upward movement reflects increased investor confidence in the US economy and a corresponding decrease in demand for safe-haven assets. The DXY’s performance is closely watched as an indicator of overall USD strength and its potential impact on global financial markets.
During a scheduled briefing in the European trading session on Monday, it was confirmed that the US and China have reached an agreement to lower tariffs by 115%. Consequently, tariffs between the US and China have been adjusted to 10% and 30%, respectively. However, import duties on goods from China still include a 20% levy related to fentanyl. Washington has conveyed assurances that this issue is being actively addressed and a resolution is expected soon. “Both parties are engaged in constructive discussions regarding the fentanyl issue,” stated US Trade Representative Jamieson Greer, signaling a commitment to resolving this remaining point of contention. The successful resolution of the fentanyl levy could further improve trade relations and bolster market sentiment.
Leading up to the US-China trade discussions in Geneva over the weekend, former US President Donald Trump indicated on Friday, via a post on Truth Social, that he was considering lowering tariffs on China to 80%. “80% Tariff on China seems right! It’s up to Scott Bessent,” Trump stated. While this statement initially introduced some uncertainty, the subsequent agreement for a more substantial tariff reduction has been positively received by investors. Market analysts suggest that the temporary trade truce could provide a much-needed boost to global economic growth, particularly for export-oriented economies. Furthermore, the reduction in trade tensions is expected to alleviate some of the inflationary pressures that have been building in recent months, potentially influencing future monetary policy decisions by central banks worldwide.
