EU Trade Deal Headlines Ahead of FOMC Meeting

Dollar rises the most since May. Optimism stemming from the EU–U.S. trade agreement pushed the dollar to strengthen 0.80% against other G10 currencies. The dollar is still down YTD but it is now on track for its first monthly gain of 2025. Crude oil also rose following Trump’s comment that he would move up the deadline for Russia to reach a truce agreement with Ukraine. WTI crude oil closed ~2.38% higher at nearly $66.71 per barrel while Brent climbed 2.80% to over $70 per barrel. Meanwhile, yields rose 1-3 bps across a steepening curve today after a quiet session, with markets largely looking ahead to Wednesday’s FOMC meeting and key macro data on Thursday and Friday. The 2-year yield closed nearly flat at 3.93% while the 10-year climbed 2 bps to 4.41%.

EU and U.S. finalize major trade deal. President Donald Trump and European Commission President Ursula von der Leyen announced a new trade deal on Sunday. Under the terms, the EU will face a baseline 15% tariff on most of its exports, including automobiles, effective August 1st. Steel and aluminum exports from the EU are excluded from the deal and will still face 50% tariffs. The EU also committed to spend $750 billion on U.S. energy products and invest an additional $600 billion into the U.S., including American military equipment. German Chancellor Friedrich Merz and Italian Prime Minister Giorgia Meloni praised the deal, calling it “sustainable,” and markets are now hoping that the U.S. and China can reach a trade agreement.

U.S. continues trade negotiations with China. Treasury Secretary Bessent and Chinese Vice Premier He met in Sweden today to resume trade negotiations. This is their third meeting in as many months, and it comes after the U.S. reached agreements with Japan and the EU. China’s near monopoly on rare earth minerals used in technology manufacturing is a main focus of the talks, and the U.S. has curbed access to cutting edge computer chips in response. The White House also remains concerned about fentanyl trafficking despite recent measures taken by China to tighten chemical controls. Meanwhile, Chinese media reported on a likely 90-day extension of the current truce that runs through August 12th. When a deal is eventually reached, many expect the levies on China to be much higher than the 15% rate agreed to with the EU and Japan.