### United States
The United States and the European Union have struck a trade agreement that is less severe than anticipated, reducing the uncertainty that has been troubling businesses and investors. In May, President Trump threatened a 50% tariff on most EU goods but agreed to a 15% rate for items such as automobiles and pharmaceuticals, excluding metals. Nonetheless, a debate persists on whether a quota and tariff system will apply to steel and aluminum. Reportedly, the EU also committed to purchasing $750 billion worth of US energy, “vast amounts” of military equipment, and investing $600 billion in the US, augmenting existing investments. Last year, EU companies invested nearly $97 billion in the US, mainly from retained earnings with less than $100 billion in US oil and liquefied natural gas purchases.
The US dollar gained strength against all G10 currencies as the North American session prepared to kick off. The Antipodean currencies and the euro experienced the most significant losses (0.5%-0.60%), while the sterling was the firmest, losing around 0.1%. Emerging market currencies also struggled, particularly in Central Europe. Equities mostly rose, except for Japan and India in the Asia-Pacific region, while Europe’s Stoxx 600 rose by approximately 0.6%, regaining more than it lost over the weekend (-0.3%). US index futures showed gains of around 0.2%-0.5%, and bonds rallied, with Japanese 10-year yields and longer maturities easing by 3-5 basis points. Even the 10-year Chinese government bond, which had been rising, pulled back by more than a basis point today. European benchmark 10-year yields softened by mostly 2-3 basis points, and the 10-year US Treasury yield fell slightly, to just below 4.37%. Gold was almost flat after initially extending last week’s decline, reaching around $3324 today. September West Texas Intermediate crude oil stayed above $65 but remained capped near $66.80.
In foreign exchange, the Dollar Index achieved its highest settlement in four sessions ahead of the weekend and seemed set to extend its gains, moving above 98.00 with nearby resistance in the 98.25-50 range. The week for the US began slowly, with only the Dallas Fed manufacturing survey due, which tends not to garner much attention. However, the pace is expected to pick up with the June goods trade balance and inventory data, providing insight into forecasts for Q2 GDP, due on Wednesday. Upcoming indicators include house prices, the June JOLTS report, and the Conference Board’s July consumer confidence measure. The FOMC meeting, while usually a highlight, shares the spotlight with the release of July jobs data on Friday, coinciding with the end of the postponement of reciprocal tariffs. Top Chinese and American negotiators are meeting in Sweden, which may lead to positive responses from the greenback if headlines confirm US Treasury Secretary Bessent’s suggestion for a likely 90-day extension of the Sino-American tariff truce. The US has significant demands of China, apart from some technology concessions, and seems unlikely to make other concessions crossing Beijing’s red lines. Chinese leaders appear resigned to observing what they perceive as Washington’s self-destruction.
### Eurozone
The euro’s recovery starting from ~$1.1555 on July 17 faltered near $1.1790 last week. It has fluctuated within the previous Friday’s range and now sits below its low of ~$1.1705, potentially signaling a bearish downturn. Despite the five-day moving average surpassing the 20-day average, the euro appears vulnerable; breaking through $1.1645 could lead to testing the mid-July low of approximately $1.1555. Although the full details of the US-EU trade deal remain undisclosed, downside risks have been mitigated, even as the ratification process poses challenges.
Key economic data for the Eurozone includes the initial Q2 GDP reading, for which Bloomberg’s survey median predicts a stagnant quarter following a 0.6% growth in Q1. Additionally, the preliminary estimate of July CPI is highly anticipated. Given that a static reading from July 2024 will be removed from the 12-month comparison, there is a risk that the annual headline reading could increase for a second consecutive month after bottoming out at 1.9% in May.
### United Kingdom
Last week, poor economic data adversely affected the British pound, leaving it nearly flat throughout the week and ranking it at the bottom among G10 currency performers—just edging out the Canadian dollar. The pound ended the previous week with two days of losses, reaching about $1.3415. Today, it is approaching $1.3400, suggesting the formation of a potential topping chart pattern. Breaking through the neckline in the $1.3365-70 area could solidify this pattern, moving towards a target around $1.2940, which aligns with other technical indicators. This week, the UK’s economic calendar is light, with consumer credit and mortgage lending as the main highlights. The Bank of England is scheduled to meet on August 7, and the swaps market continues to anticipate a rate cut with roughly 95% confidence.
### China
The low for the year, recorded last Thursday at CNY7.1490 and ~CNH7.1440, may represent an important near-term level for the Chinese yuan. The dollar surged to almost CNY7.17 and CNH7.1710 before the weekend, nearly reaching CNH7.1770 today. The People’s Bank of China set the dollar’s reference rate at CNY7.1467 (compared to CNY7.1419 at the end of last week and CNY7.1385 last Thursday).
US and Chinese officials are meeting in Stockholm, marking a continuation of last week’s EU-China summit, which concluded without tangible results. US Treasury Secretary Bessent has suggested the tariff truce set to end on August 12 might be extended by another 90 days, a possibility China might accept since it believes time is on its side. In the six months since beginning his second term, President Trump has done more to weaken alliances than Beijing could have hoped for. The Trump administration continues to dismantle institutions of soft power, creating a vacuum that Chinese programming has filled, especially following the cessation of Voice of America broadcasts in countries from Indonesia to Nigeria. Meanwhile, China maintains dominance in several critical supply chains, such as rare earth elements, drones, and electric vehicle batteries, with pharmaceuticals potentially on the horizon.
June industrial profits reported over the weekend show a 4.3% year-over-year drop, highlighting Beijing’s new campaign against “involution,” or excessive competition, involving over-investment and market share battles. China’s July PMI report is expected this Thursday, with the composite ending the previous year at 52.2, averaging 50.9 in Q1 and 50.4 in Q2.
### Japan
The US dollar hit a low last Thursday near JPY145.85, then embarked on a recovery that extended into the weekend, nearly reaching JPY147.95—a 61.8% retracement of the decline from the July high near JPY149.20. It has now surpassed JPY148.35, with the next target above JPY148.40 possibly revisiting the mid-July high.
Japan’s noteworthy events are mostly scheduled for Thursday. Before the Bank of Japan announces the outcome of its meeting, June data on retail sales and industrial production will be released. Retail sales might rebound from a 0.6% dip in May, while industrial production is expected to fall for the third straight month. Although the BOJ is anticipated to maintain its current policy stance, the recent trade agreement improves market confidence that Governor Ueda could lead the central bank towards another rate hike and further normalization of monetary policy by the year’s end. The BOJ is also expected to update its forecasts, regarded as part of its forward guidance.
### Canada
Last week, market participants dismissed attempts by dollar bears to test the July low (~CAD1.3555), slightly above the previous year’s low from June 16 (~CAD1.3540). The dollar made a strong recovery to CAD1.3725 before the weekend and climbed slightly above CAD1.3740 today. There’s minor chart resistance ahead of CAD1.3775.
Just before the FOMC meeting concludes on Wednesday, the Bank of Canada is expected to maintain its interest rate target at 2.75%, marking the third consecutive meeting without policy changes. The central bank has previously indicated one potential remaining rate cut in this cycle. Despite disappointing June retail sales data (-1.1%), the swaps market remains skeptical about another rate cut this year, though indicative pricing suggests about a 55% likelihood of a cut before year-end—a decrease from a roughly 75% chance last Tuesday.
### Australia
The Australian dollar reached a year-to-date high of $0.6625 last Thursday before reversing course and retreating to $0.6550 ahead of the weekend, where the 20-day moving average is located. Continued selling pressure today has pushed the aussie below the 61.8% retracement of its recent upward movement, now nearing $0.6520. Falling below $0.6500 could incite an additional half-cent decline.
Australia’s economic calendar is relatively light until Wednesday-Thursday when Q2 CPI, June retail sales, and private sector credit figures will be published. The central bank places more emphasis on quarterly CPI over the newer monthly series. Recent monthly data hints at a slight decrease in quarterly inflation, with Q2 CPI potentially slowing to 2.2% from 2.4%, while the underlying metrics might also slightly decrease. Nominal retail sales may have risen by 0.3% in June, but when adjusted for inflation, they may have remained flat in Q2 as they did in Q1. The Reserve Bank of Australia is set to meet on August 12, with futures markets continuing to anticipate a quarter-point rate cut, potentially followed by another in Q4. Two cuts would reduce the overnight rate target to 3.35%, and the swaps market is pricing in another potential cut nearly complete by 2026.
### Mexico
Last week, the dollar hit a new low for the year (~MXN18.5250) and remained within the trough, retesting the low before the weekend and then recovering to nearly MXN18.5950 with sellers in the vicinity. Initially, the dollar dropped to a new low (~MXN18.5110) earlier today, but it has since rebounded slightly beyond MXN18.63, forming a bullish outswing day pattern with nearby resistance around MXN18.66.
Mexico is set to report June unemployment and trade figures today, with Q2 GDP’s first estimate being the week’s highlight, scheduled for Wednesday. Economists caution about a slight contraction possibility (-0.1%), following Q1’s 0.2% growth. The unemployment rate might inch up for a third consecutive month. In May, the unemployment rate of 2.75% was the highest since September of the previous year. Mexico recorded a trade surplus of approximately $2.04 billion in the first five months of 2025, a significant improvement over the $4.46 billion deficit during the same period in 2024, and the $6.56 billion shortfall in the first five months of 2023. This turnaround is largely due to a 3.4% export increase versus a modest 0.8% rise in imports.
