The US dollar (USD) started the week on a positive note, continuing its modest recovery since Thursday, as easing global trade tensions boosted investor sentiment. Interestingly, the greenback, which typically underperforms in a risk-on environment, found support despite improved risk appetite, bolstered by expectations that the Federal Reserve (Fed) will keep interest rates unchanged at its monetary policy decision on Wednesday. Notably, a series of trade agreements concluded last week also provided support for the greenback, with the looming August 1 tariff deadline keeping markets on edge.

The US Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, continued its gains for the third consecutive day, rising nearly 0.50% during American trading hours as markets cheered the breakthrough trade agreement between the United States (US) and the European Union (EU). At the time of writing, the index was hovering around 98.15, marking its highest level in nearly a week.

The new US-EU trade framework agreement was finalized after US President Donald Trump and European Commission President Ursula von der Leyen met briefly at Trump's Turnberry golf course in Scotland on Sunday. Under the agreement, the US will impose 15% tariffs on most EU imports, such as cars, semiconductors, and pharmaceuticals, significantly lower than the previously threatened 30%. According to Reuters, the base tariff will be complemented by "zero-for-zero" tariff exemptions covering strategic sectors including aircraft and parts, certain chemicals, semiconductor manufacturing equipment, generic drugs, agricultural goods, and key raw materials.

In return, the EU has committed to purchasing $250 billion worth of US liquefied natural gas (LNG) annually, totaling about $750 billion over three years. The deal also outlines a $600 billion EU investment package in the US, focused on strategic sectors such as clean energy, defense equipment, and manufacturing. Although the agreement maintains existing 50% tariffs on steel and aluminum, officials have hinted that a quota-based system could replace them in future negotiations. (alg)

Source: FXstreet