Dollar Opens an Important Week on a Rising Note
July 28, 2025
(181) The dollar strengthened overnight by 0.6% on a weighted basis and against the Mexican peso and Australian currency, as well as 0.8% relative to the euro and Swiss franc, 0.5% versus the Japanese yen, 0.7% vis-a-vis the New Zealand dollar, and 0.2% against the Canadian dollar and sterling.
The dollar benefited from news that U.S. and EU negotiators had agreed to a trade deal that averts an escalating trade war, halves the potential tariff on U.S. imports from the European Union to 15% (the same rate as in the recent deal with Japan), and includes an EU commitment to buy $750 billion of U.S. energy and military goods.
The twice-postponed imposition on August 1st of across-the-board reciprocal tariffs is now just half a week away. Besides those with Japan and now the EU, the Trump Administration has secured trade deals with the U.K., Indonesia, Vietnam, and the Philippines, while China and the United States are reportedly close to extending their trade war truce by up to a further three months. Countries without a trade deal and that will face higher tariffs after Friday’s deadline include Brazil (50%), Laos and Mynamar (at least 40%), Canada, Mexico, South Africa, Bangladesh, Serbia, Cambodia, Thailand, Libya and Sri Lanka (between 30% and 36%), and India, Turkey, Bosnia-Herzegovina,and Brunei (at least 20%).
Most stock markets have opened the final week of July higher. The Japanese Nikkei’s 1.1% loss and India’s Sensex drop were notable exceptions, however. U.S. stock futures are up about 0.3%. Share pricess closed up 0.7% in Hong Kong, and major European exchanges have so far risen 1.0% in Milan, 0.9% in Madrid, 0.5% in Paris and 0.2% in Frankfurt.
10-year sovereign debt yields slipped overnight by four basis points in Japan and Italy, three bps in Spain, and two bps in France and Germany but rose a basis point in the United States and Great Britain. Lessening risk aversion after the U.S.-EU trade agreement took some wind out of Bitcoin’s price, which fell 0.7%. Gold is flat, but the price of oil climbed 1.3%.
This has been a well-anticipated week for reasons other than President Trump’s trade deal deadline. Investors will get their first looks at second-quarter GDP growth in both Euroland and the United States. The Federal Reserve and Bank of Japan have scheduled policy meetings, which neither’s key interest rates are expected to get changed what where clues to the timing a future rate adjustments may be clarified. U.S. July labor market statistics will be reported, and Japan reports a slew of key monthly data. Manufacturing purchasing manager indices from last month will be announced for over 30 economies late in the week.
As is often the case on Mondays and especially at the height of the summer vacation season, today has seen a shortage of meaningful data releases. That is not to say that currency and other financial markets aren’t susceptible to jolting news at this time of year. History attest to the need to stay alert in the dog days of summer. The initial death knell of the fixed dollar rate era happened on August 15, 1971, when former President Nixon severed the dollar’s link to gold, and three years later he resigned from office in mid-August. Oil prices got a huge lift after Iraq invaded Kuwait in August 1990, and there was a failed coup in the Soviet Union in the following August. In early August of 2007, two major U.S. mortgage lenders encountered difficulties in the earliest signs of what ballooned eventually into the biggest global credit crisis since the Great Depression. The first term of former President Ronald Reagan, unlike the start of President Trump’s second term, was a period of great dollar appreciation. The currency’s rise from early 1981 to a peak in February 1985 evolved in three broad waves, the first of which stopped abruptly in August of 1981. The dollar had risen, for example against the German mark from DEM 1.9629 at the end of 1980 to DEM 2.5745 at the onset of a brief but significant correction. The mark eventually peaked at DEM 3.475 in early February 1985.
Among economic data reported today,
- The distributive trades survey index compiled by the Confederation of British Industry printed at a weaker-than-forecast -34. Although at a 2-month high, this marks the tenth sub-zero reading in a rose and the fourth time in five months when it has been lower than -25.
- Industrial production in India rose 1.5% last month.
- Irish real GDP advanced 1.0% on quarter and 12.5% on year in the second quarter. That was the slowest quarterly growth rate in a year.
- Malaysian producer prices fell 0.7% on month and 4.2% on year in June. On-year PPI deflation was its deepest in two years.
- Chinese foreign direct investment fell more sharply year-on-year in the second quarter than in the first quarter and dropped on average by 15.2% in the first half of 2025. Industrial corporate earnings were 1.8% lower than in the first half of 2024.
- Hong Kong experienced its largest trade deficit in a year and a half during June, and the first-half deficit of HKD 184 billion was 14% wider than in the first half of 2024.
- In Finland, which shares a precarious border with Russia, consumer confidence this month was at its best level since Russia invaded Ukraine.
- Between June 2024 and June 2025, retail sales grew 4.9% in Lithuania, 4.0% in Denmark and 2.2% in Slovenia.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: U.S.-EU trade deal
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