FX Daily: Trade Deal Adds to Market Euphoria

Published 28/07/2025, 08:30
Updated 28/07/2025, 10:26

The announcement of a US-EU trade deal has lifted equity futures on both sides of the Atlantic. Investors are more worried about a bubble now than a recession. The deal takes some pressure out of the 1 August tariff deadline and shifts the focus back to a very busy week of macro data. Here, we think the Fed meeting, inflation and jobs data can support the dollar.

USD: The Last Big Trading Week of the Summer

Markets have taken the news of a US-EU trade deal positively. The deal is largely as rumoured in the middle of last week and seems to follow a template of 15% baseline tariffs and a commitment to spending big on US goods and energy. The deal is better than the 30-50% tariff rates threatened over the last couple of months, although it is probably as bad as the universal tariff rates being discussed late last year.

We still do not know what is going to happen to the pharmaceutical sector, where the results of a trade investigation may well be released later this week. In terms of big trade deals yet to be secured, the market will still be on the lookout for deals with Asia (South Korea, Taiwan, India) and perhaps anything new for Mexico and Canada, too.

European politicians will be hoping that this deal can bring some certainty to businesses and unlock much-needed investment. Investment intentions in PMI surveys will therefore be heavily scrutinised over the coming months.

Given that a deal close to this one was heavily rumoured last week, it may be no surprise then that FX markets have not done much overnight. However, there is a huge amount of macro data and central bank action this week, which we think can provide some support to the dollar.

The US macro data includes jobs data (JOLTS Tuesday, NFP Friday), a likely bounce back in second quarter GDP on Wednesday and stickier inflation on Thursday (June core PCE), which should tick back up to 0.3% month-on-month. This should leave the majority of the Federal Reserve comfortable in their patient position on interest rates (FOMC meeting on Wednesday) and see a further pricing out of the prospects of a September Fed rate cut.

Once this week’s data calendar is clear, it looks as though markets are pricing a quiet August. This should add interest to the carry trade, where one-week rates at 4.37% per annum do not make the dollar an ideal funding currency.

We continue to favour a period of consolidation for the dollar, where the US Dollar Index (DXY) can grind back towards the 98.50/99.00 area, assuming the US data obliges.

EUR: Welcome News On Trade

DAX Futures are currently trading up 1.2% as investors welcome some clarity on trade. Whether this remains the final deal remains to be seen, but taken at face value, European corporates can now progress with some planning. This comes at a time when eurozone fundamentals are not that bad – high saving rates, lower inventories and the prospect of some powerful fiscal expansion.

The above probably supports EUR/USD at levels close to 1.20 by the end of the year, but our call on the next chapter is a corrective one. Here, we think Fed easing expectations can be scaled back over the coming months, but also that a 25bp rate cut from the European Central Bank in September is underpriced at just a 15% probability.

Eurozone data this week may support such a view, where second-quarter GDP (Wednesday) is expected to come in flat after a 0.6% reading in the first quarter. And the eurozone July flash inflation print (Friday) is expected to dip under 2.0%.

With a speculative market already reasonably long euros and a 2% per annum cost of carry against the dollar to deal with, we do not see the case for EUR/USD to immediately push through the highs at 1.1830. Instead, we have a bias for EUR/USD drifting below 1.1700 and perhaps all the way to 1.1600 if the Fed continues to resist pressure to cut rates this Wednesday.

GBP: 0.88 for EUR/GBP Might Be a Stretch

EUR/GBP looks to be trading quite comfortably above April’s spike high near 0.8735. A move up to 0.88 is not guaranteed, however, since this week’s eurozone data could weigh a little on the euro. At the same time, sitting long EUR/GBP in quiet August markets is again carry negative and a very light UK calendar this week looks unlikely to provide the incentives to add to short sterling positions. Perhaps EUR/GBP can trade something like a 0.8700-0.8770 range this week.

GBP/USD looks more vulnerable. Here, we favour a retest of decent support at 1.3370, below which losses can accelerate – perhaps all the way to 1.3150 if the US data/FOMC event risk this week is dollar positive enough.

Disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user’s means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Original Post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2025 - Fusion Media Limited. All Rights Reserved.