The euro struggled on Tuesday to recover from its sharp losses, as investors began to realize that the terms of the trade agreement between the United States and the European Union largely favored Washington and offered little improvement to the EU's economic outlook. Meanwhile, the US dollar maintained its gains.

France on Monday described the framework trade deal as a "dark day for Europe," saying the bloc had yielded to President Donald Trump under an unbalanced agreement that imposed 15% tariffs on European goods.

German Chancellor Friedrich Merz said the German economy would suffer "significant" damage as a result of the agreed tariffs.

The euro had dropped by 1.3% in the previous session, marking its largest daily decline in over two months, amid concerns over growth and a decline in eurozone government bond yields.

The euro failed to regain those losses and was recently trading slightly lower by 0.02% at $1.1584.

Ray Attrill, Head of FX Strategy at National Australia Bank, said: "It didn’t take long for markets to conclude that while the news appears relatively positive, it’s ultimately negative when it comes to its near-term impact on eurozone growth."

He added: "The deal was strongly condemned by France, while others — including Chancellor Merz — spoke of the negative consequences for exporters and, by extension, economic growth."

The euro’s decline supported the dollar, which jumped 1% against a basket of currencies overnight.

The dollar held steady on Tuesday, pushing the British pound to a two-month low of $1.3338, while the Japanese yen rose 0.2% to 148.22 yen per dollar. The dollar index held flat at 98.66.

Thierry Wizman, global currency and interest rate strategist at Macquarie Group, said:

"While the strength of the US dollar may reflect the perception that the new trade agreement between the US and the EU leans in Washington’s favor, it may also reflect a sense that the US is reengaging with the EU and its key allies."

However, Trump said Monday that most trade partners who are not negotiating separate deals will soon face tariffs ranging from 15% to 20% on their exports to the US — significantly higher than the 10% blanket tariff he imposed in April.

In other currency markets, the Australian dollar rose 0.04% to $0.6524, while the New Zealand dollar was little changed at $0.5970.

The Chinese yuan in the domestic market hit a one-week low at 7.1794 per dollar, as investors awaited the outcome of trade talks between Washington and Beijing.

Top economic officials from the US and China met in Stockholm on Monday for more than five hours of talks aimed at resolving longstanding economic disputes behind the ongoing trade war between the world’s two largest economies, in an attempt to extend the current three-month truce.

Alongside the trade negotiations, investors this week are also awaiting interest rate decisions from both the US Federal Reserve and the Bank of Japan.

Both central banks are expected to keep interest rates unchanged, but traders will closely monitor their post-meeting statements for clues on the timing of any future monetary policy moves.

Gold prices rose in the European market on Tuesday for the first time in the past five days, holding above a three-week low, amid increased buying activity from low levels. The strong rise of the US dollar against a basket of global currencies limits the extent of this recovery.

The Federal Reserve’s monetary policy meeting will begin later today, with decisions expected on Wednesday. Expectations point to keeping US interest rates unchanged for the fifth consecutive meeting.

In order to reprice the likelihood of an interest rate cut in September, markets are awaiting a series of key labor market data from the United States starting today.

Price Overview

• Gold prices today: Gold rose by 0.45% to ($3,329.94), from the opening level at ($3,314.77), and recorded the lowest level at ($3,308.10).

• Upon Monday’s price settlement, gold lost 0.7%, in its fourth consecutive daily loss, and recorded its lowest level in three weeks at $3,301.94 per ounce, due to the strength of the US dollar.

US Dollar

The dollar index rose on Tuesday by more than 0.4%, extending its gains for the fourth consecutive session, recording a five-week high at 99.05 points, reflecting the continued rise in the US currency against major and minor currencies.

This rise comes amid easing concerns about a US economic slowdown following recent trade agreements concluded by the United States with Japan and the European Union.

Additionally, strong economic data indicated that the Federal Reserve may take longer before resuming interest rate cuts.

Federal Reserve

The Federal Reserve’s important monetary policy meeting will begin later today, with decisions expected on Wednesday. Expectations point to keeping US interest rates unchanged for the fifth consecutive meeting.

The monetary policy statement and comments from Federal Reserve Chair Jerome Powell are expected to provide strong and clear guidance on the future of interest rates in the United States during the remainder of this year.

US Interest Rates

• According to the CME Group’s FedWatch Tool: The probability of a 25 basis point interest rate cut at today’s meeting is priced at 3%, while the probability of keeping interest rates unchanged is priced at 97%.

• The probability of a 25 basis point interest rate cut at the September meeting is currently priced at 64%, while the probability of no change is priced at 36%.

• To reprice the likelihood of a September cut, markets are awaiting a series of key labor market data from the United States. Today, the Job Openings report for the end of May will be released, followed by private sector employment data on Wednesday, weekly jobless claims on Thursday, and the July jobs report on Friday.

Gold Performance Outlook

• Tim Waterer, Chief Market Analyst at KCM Trade, said: Trading gold at around $3,300 or lower still attracts buyer interest. While short-term market dynamics — thanks to trade agreements and the strength of the US dollar — do not support gold, there remains potential for upside in the future.

• Waterer added: If weaker US economic data emerges, or if Trump’s criticism of the Federal Reserve pushes the central bank to adopt a more dovish stance this week, that could be positive for gold.

SPDR Fund

Gold holdings at SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, declined yesterday by about 0.86 metric tons, bringing the total down to 956.23 metric tons, retreating from the 957.09 metric tons that marked the highest level since June 23.

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.

The Japanese yen declined in the Asian market on Tuesday against a basket of major and minor currencies, deepening its losses for the fourth consecutive day against the US dollar and recording its lowest level in two weeks, as the US currency continued to shine following recent trade developments and ahead of the Federal Reserve meeting.

The Bank of Japan is scheduled to meet on Wednesday to discuss monetary policy appropriate to recent economic developments in the country, with the probability of a 25 basis point interest rate hike remaining below 20%.

The Price

• USD/JPY exchange rate today: the dollar rose against the yen by 0.15% to ¥148.71 — the highest since July 18 — up from today's opening price of ¥148.50, with a low of ¥148.29.

• The yen lost 0.6% against the dollar by Monday’s close, marking its third consecutive daily loss, amid improved risk appetite in markets.

US Dollar

The US Dollar Index rose by about 0.1% on Tuesday, extending its gains for the fourth consecutive session and reaching a two-week high at 98.71 points, reflecting continued strength in the US currency against a basket of major and minor currencies.

This rise comes as fears of a US economic slowdown eased following recent trade agreements signed by the United States with Japan and the European Union.

In addition, strong economic data pointed to the possibility that the Federal Reserve may take longer before resuming US interest rate cuts.

Later today, the highly anticipated Federal Reserve monetary policy meeting will commence, with decisions expected on Wednesday. Forecasts indicate that US interest rates will likely remain unchanged for the fifth consecutive meeting.

Bank of Japan

• The Bank of Japan will meet on Wednesday to discuss monetary policy suitable to developments in the world’s fourth-largest economy, with decisions expected on Thursday.

• Market pricing for a 25 basis point rate hike by the Bank of Japan in this meeting currently holds steady at around 20%.

• Bank of Japan Governor Kazuo Ueda previously stated that the economy and prices are facing strong downward pressures, and that the Bank of Japan has limited room to support growth by cutting interest rates, with the short-term interest rate remaining at 0.5%.

• Former Bank of Japan Deputy Governor Hiroshi Nakaso said it is likely the Bank will resume interest rate hikes once uncertainty over the impact of US tariffs on the economy recedes.