Moving on
July closes with a bang. Central bank decisions, job data, and the latest chapter in the tariff saga, a flood of information that now appears less threatening, helping sustain the current positive momentum in financial markets. As concerns over a prolonged trade conflict continue to fade, markets appear increasingly positioned to move beyond the tariff story.
Following agreements with the UK, China, Vietnam, Indonesia, the Philippines, and Japan, the United States reached a deal yesterday with the European Union. Four of the country’s largest trade partners now benefit from greater policy clarity. Remaining discussions involve Canada, Mexico, and South Korea. While a resolution with South Korea may be announced this week, expectations for progress with Canada and Mexico are subdued. A renegotiation of the USMCA/CUSMA agreement appears unlikely in the near term, though existing provisions under CUSMA offer protection against the proposed 35%-30% tariff increase for Canada and Mexico.
Although broader resolution is progressing, isolated tariff concerns remain. Additional communications may be sent to certain countries (we won’t call it ‘Liberation Day II’), though no substantial escalation is expected. Potential sector-specific measures, including lumber, pharma, semis, critical minerals, transportation, aircraft, drones, and polysilicon, continue to be studied in the administration, while domestically, the legal aspect of the tariffs is still discussed. Notably, 50% tariffs on copper are set to take effect Friday, which have contributed to a 3.5% decline of the Chilean peso against the U.S. dollar during July.
Implementation timelines for these trade agreements are unclear. Japanese top negotiator Akazawa stated that there was no discussion on a legally binding agreement or how to implement one yet. Nonetheless, after a tumultuous first half, the series of non-retaliatory agreements ahead of August 1 offers sufficient reassurance for markets to pivot away from trade-related uncertainty.
So, what could further shape markets and July’s dollar rebound:
- Payrolls: this Friday non-farm payrolls report in the US will be one of three payroll reports before the next FOMC decision on September 17, and one of two before the Jackson Hole symposium on August 21. In terms of monetary policy, this report alone might not bring as much clarity. With 109K jobs expected, a sub-100K print could rattle markets and weigh on the dollar.
- Central banks: The Fed, Bank of Canada and Bank of Japan meet this week, and they’re all likely to hold at 4.5%, 2.75% and 0.5% respectively. The prevailing narrative has been clear: markets have rallied on the back of expectations that the Fed could lower rates at least once this year. But taking the contrarian take, what if the rally isn’t about rate cuts at all? What if it’s driven by underlying economic strength, and the Fed has no compelling reason to ease policy? Will expand on this in the future, but for now, central bank decisions are expected to be uneventful, with minimal market or dollar impact.
- Earnings: About 120 S&P 500 firms report this week, including Apple, Amazon, Meta, and Microsoft. These updates may provide additional insight into capital expenditures related to AI. Tech may benefit from the US-EU agreement, which spares it from retaliation. So far, earnings are in line with ~6% expected growth. Beat rates (~78%) and average surprises (~6%) match recent quarterly trends. Despite headlines, tech isn’t leading 2025 gains, industrials are. Another story worth revisiting.
- Fixed Income: Despite recent range-bound behavior in treasuries, the Quarterly Refunding Announcement will be a focal point. It offers a near-term fiscal barometer and carries implications for bond yields, equity valuations, and market liquidity. The composition of issuance, short-term versus long-duration securities, may also influence reserve balances and the effects of quantitative tightening, making the QRA a key input for multi-asset strategies.
- Other key macro data include the Federal Reserve’s preferred inflation indicators, Eurozone inflation, GDP data (Canada, U.S., Mexico, Eurozone), China PMIs, Australian CPI, and European consumer spending metrics.
Euro at a crossroads: U.S. data to set the summer tone
On Sunday, the European Union and the United States reached a long-awaited trade agreement—just days before the August 1st deadline that would have triggered a 30% levy. Instead, the deal imposes a 15% tariff on nearly all European exports to the U.S., with exceptions for steel, aluminum, and pharmaceuticals. Beyond tariffs, the agreement includes major investment commitments: the EU will purchase $750 billion worth of U.S. energy and invest an additional $600 billion on top of existing holdings. While full details are still emerging, the announcement has been hailed as a win by both parties, with President Trump and European Commission President Ursula von der Leyen praising the outcome.
As for the euro, the impact remains uncertain. The common currency is expected to benefit as the deal averts a trade war that could have prompted further ECB rate cuts and dampened eurozone growth prospects. Meanwhile, the dollar also stands to gain—trade agreements bring much-needed clarity, which the dollar craves, as its absence had contributed to the currency’s decline during the first half of the year.
Last week, EUR/USD’s failure to retest the early-July 1.18 levels – despite renewed dollar unease and a freshly hawkish ECB tone – suggests that earlier drivers, such as U.S. political noise and Fed dovishness, may be losing some of their grip. On the political front, U.S. dollar sentiment has somewhat improved thanks to progress on trade deals and reduced tension between Trump and Powell. As for the Fed, its stance has shifted noticeably more hawkish since early July, eroding that fundamental support that previously kept EUR/USD near $1.18 more comfortably.
The pair finished the week tightly range-bound between $1.1700 and $1.1780, but remains technically well-positioned. On the daily chart, EUR/USD continues to trade above the 21-, 50-, and 200-day moving averages, keeping the H1 rally intact for now.
With the Fed expected to stick to its “wait and see” playbook, this week’s flood of U.S. macro data becomes the key catalyst for EUR/USD’s price action. Should figures come in strong, a break below $1.17 looks increasingly plausible. Beyond that, the next notable support lies near $1.16, where EUR/USD may begin testing the 50-day moving average more aggressively—a level that’s acted as a critical anchor throughout this year’s rally. Speculation about a reversal can wait; for now, it’s still too early to call.
On the domestic front, eurozone data releases – namely unemployment, GDP, and inflation – will be closely watched. However, with expectations already lower compared to the previous readings (GDP and inflation), it would take notably weaker results to push the ECB toward a more dovish stance, which remains improbable. This limited room for policy flexibility on the eurozone side reinforces the case that U.S. macro data will be the primary driver of price action this week.
GBP/EUR hovering near 20-month lows
Sterling has fallen to its lowest level since November 2023 against the euro following another round of modest UK data disappointments — notably in flash PMIs and retail sales last week. GBP/EUR broke out of its long-term uptrend at the start of this year and tested the trendline around €1.20 in May before sharply reversing course in a sign that momentum is a skewed to the downside.
The EU’s trade deal with the US could also prove to be constructive for the common currency over the long run, keeping EUR/USD elevated and dragging GBP/EUR lower. However, despite recent softness in GBP/EUR, traders may be overstating domestic UK risks. Beneath the headlines, the domestic backdrop remains relatively solid — with underlying activity and inflation dynamics providing a degree of resilience that isn’t fully reflected in GBP pricing. With a 25bp cut almost fully priced, the Bank of England (BoE) appears set to stick to its “gradual and careful” quarterly easing pace at the 7 August meeting. Add stretched short GBP positioning, and there is scope for GBP/EUR to rebound toward levels more aligned with rate differentials and implied volatility. However, given August is historically a volatile month, the euro could remain favoured in the very short term.
As for GBP/USD, the currency pair failed to hold above its 21-day moving average in a sign that the modest rebound last week may be short-lived. The pair remains largely tethered to USD sentiment, meaning robust US data could drag the pair further south in the near term. We see $1.33 as a tactical downside target over the next week or two unless we close this week above $1.35 if investors view the latest US trade deals as hitting the US economy harder than its peers.
US Dollar holds gains on tariff news
Table: Currency trends and trading ranges
Key global risk events
Calendar: July 28-August 01
All times are in ET
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
