- EUR/USD gains ground to near 1.1745 in Tuesday’s Asian session, adding 0.30% on the day.
- The EU rushes to conclude a trade agreement with the US this week.
- Fed rate cut bets fade due to the stronger US June employment data.
The EUR/USD pair attracts some buyers here to around 1.1745 during the Asian trading hours on Tuesday. The upbeat Eurozone Retail Sales data for May provides some support to the Euro (EUR) against the US Dollar (USD). Traders will closely monitor the development surrounding the United States (US) and the European Union (EU) trade agreement.
The EU hopes to reach a preliminary trade agreement with the US this week, allowing it to lock in a 10% tariff rate beyond the August 1 deadline while they negotiate a permanent deal. Traders react to reports that the US proposed an offer that would maintain the 10% baseline tariffs but would exempt sensitive industries such as airplanes and spirits. Investors see 10% as a more palatable amount for levies compared with other counterparts, which will underpin the shared currency in the near term.
Data released by Eurostat on Monday revealed that the Eurozone’s Retail Sales grew 1.8% YoY in May, compared to a revised 2.7% rise in April. This figure came in above the market consensus of a 1.2% figure. On a monthly basis, the Eurozone Retail Sales declined 0.7% in May versus 0.3% prior (revised from 0.1%), aligning with the market expectations.
Across the pond, Friday’s US economic data reflecting labor market resilience pushed back expectations for imminent monetary policy easing by the Federal Reserve (Fed). According to the CME FedWatch tool, the likelihood of a July reduction is declining from 25% to less than 5%. The release of the FOMC Minutes will take center stage later on Wednesday. This report might offer insight into how Fed officials view the US economy.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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