The US Dollar (USD) starts the week on a firmer note, extending its modest recovery since Thursday, as easing global trade tensions lift investor sentiment. Interestingly, the Greenback, which typically underperforms in a risk-on environment, is finding support despite improving risk appetite, underpinned by expectations that the Federal Reserve (Fed) will leave interest rates unchanged at its monetary policy decision on Wednesday. Notably, a flurry of trade agreements finalized last week is also acting as a tailwind for the Greenback, with the August 1 tariff deadline looming and keeping markets on edge.

The US Dollar Index (DXY), which tracks the value of the Greenback against a basket of six major currencies, extends gains for the third consecutive day, climbing nearly 0.70% during American trading hours as markets cheer the breakthrough trade agreement between the United States (US) and the European Union (EU). At the time of writing, the index is hovering around 98.40, marking its highest level in nearly a week.

The new US-EU framework trade 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 a 15% tariff levy on most EU imports such as cars, semiconductors, and pharmaceuticals, significantly lower than the previously threatened 30%. According to Reuters, that baseline rate is to be supplemented by "zero-for-zero" tariff exemptions covering strategic sectors including aircraft and parts, select chemicals, semiconductor manufacturing equipment, generic drugs, agricultural goods, and key raw materials.

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

Source: Fxstreet