US-EU Tariff Agreement Boosts Risk-Averse Demand, US Dollar Sees Biggest Gain Since May
We have learned from Zhongtong Financial App that the US dollar exchange rate has seen its biggest gain since early May, with a possibility of achieving the first monthly increase this year. Meanwhile, the US-EU trade agreement has once again sparked concerns about the impact of tariffs on global economic growth. On Monday, the Bloomberg Dollar Index rose 0.8% compared to major peer indices. Although it is still significantly lower than at the beginning of the year, the index has risen by 1.5% since July.
The US and EU announced a tariff agreement with a rate of 15% on Saturday, which led to an increase in the US dollar against all currencies in the G10 group, with the euro seeing the largest decline. Investors are flocking to the US dollar as a safe-haven currency while weighing the impact of tariffs on European and global economic growth.
Aroop Chatterjee, a strategist at Deutsche Bank, said: "This shows that due to these asymmetric 'agreements', actual tariff measures will have a negative impact on the economic growth of other regions around the world."
The agreement will make the tariff level faced by EU export goods much higher than the rate applied to US import goods. European Commission President von der Leyen said this move aims to adjust the EU's trade surplus with the US.
A Bloomberg macro strategist pointed out: "The European Central Bank initially expected trade friction to be relatively mild, but the agreement ultimately included higher tariffs and more severe consequences. This miscalculation is now having a major impact on the dollar."
This development has helped alleviate many concerns about trade. US and Chinese officials have ended their two-day first-round talks, which aim to extend the tariff ceasefire agreement to mid-August.
Investors are currently shifting their attention to the busy week ahead, which will include the Fed's July rate decision, the Treasury Department's quarterly update on bond sales, as well as a key report on US non-farm employment. However, the shadow cast by President Trump's August 1 deadline for countries to reach trade agreements with the US remains.
For the US government securities market, this week began with a $13.9 billion bond auction. The yield on five-year US Treasury bonds was 3.983%, slightly higher than the pre-auction trading level. Earlier, two-year US Treasury bonds showed strong demand. These transactions have had little impact on the market, with the ten-year US Treasury bond yield remaining around 4.41% on Monday.