US dollar jumps most since May after US and EU reach trade deal

[NEW YORK] The US dollar jumped the most since early May, putting it on track for its first monthly gain this year, as a trade deal between the US and the European Union renewed some fears about the impact of tariffs on global growth.

The Bloomberg Dollar Spot Index strengthened 0.8 per cent against major peers on Monday (Jul 28). While it’s still down significantly from the start of the year, the gauge of the US currency has gained 1.5 per cent in July so far.

The deal, announced over the weekend, sent the US dollar higher against all peers in the Group of 10, with the euro falling the most, as investors turned to the greenback as a haven as they weighed the impact of tariffs on economic growth in Europe and the rest of the world.

“It’s a realisation that actual tariffs will be negative for the rest of the world growth given these asymmetric ‘deals,’” said Aroop Chatterjee, a strategist at Wells Fargo.

The agreement leaves EU exports facing much higher tariffs than the bloc would charge for imports from the US, with European Commission President Ursula von der Leyen saying the aim is to rebalance a trade surplus with the US.

Helping ease some of the fears around trade, US and Chinese officials finished the first of two days of talks aimed at extending their tariff truce beyond a mid-August deadline.

Investors are now shifting their focus to a busy week that includes the US Federal Reserve’s July decision on interest rates, the Treasury Department’s quarterly update of debt-sales plans and a key report on the US labour market. Hanging over it all is an Aug 1 deadline imposed by US President Donald Trump for nations to reach trade deals with the US.

For the Treasuries market, the week began with US$139 billion of auctions. The sale of five-year notes drew a yield of 3.983 per cent, slightly higher than trading at the pre-auction deadline. Earlier, a sale of two-year notes showed solid demand.

There was minimal market reaction to the deals, with the 10-year yield settling around 4.41 per cent on Monday. BLOOMBERG