Euro nears 2021 high amid progress on US-EU trade deal

The euro rose slightly above $1.175, nearing its highest level since August 2021, as easing trade tensions buoyed investor sentiment.

The uptick followed news that the US had proposed a deal to the EU maintaining a 10% baseline tariff, with exemptions for key sectors such as aircraft and spirits—a move that markets interpreted as a step toward avoiding a broader transatlantic trade conflict. However, Washington offered no indication that it would extend exemptions to more politically sensitive areas such as automobiles, steel, aluminum, or pharmaceuticals, despite persistent lobbying from European officials.

The EU is pushing to finalize a preliminary agreement with the US this week to secure the 10% rate beyond the looming August 1 deadline, providing both sides with a buffer as negotiations toward a permanent framework continue.

Still, tensions remain elevated. Brussels announced it was preparing retaliatory tariffs on a range of US products in response to longstanding US duties on European metals. EU officials also warned that if no deal is reached in time, further retaliatory measures could include export controls, increased scrutiny on US companies operating within the bloc, and restrictions on access to public procurement contracts—measures that could escalate the dispute and weigh on investor confidence.

On the monetary policy front, currency traders are also digesting evolving expectations for the European Central Bank. With inflation still above target in some member states but growth remaining subdued, markets are now pricing in just one additional rate cut from the ECB this year, a shift from earlier projections of multiple reductions.

The euro’s recent strength reflects both a softening dollar—amid global trade uncertainties—and growing confidence that the eurozone economy may avoid a deeper downturn, supported by improving sentiment indicators and resilient labor markets.