The euro fell to its weakest level in more than a month on Monday as the U.S. dollar strengthened to a five-week high.
This was supported by investor optimism over the resilience of the U.S. economy and expectations of upbeat economic data releases this week.
The Bloomberg Dollar Spot Index gained 0.3 percent as the greenback advanced against all of its Group-of-10 peers.
The euro led the decline, pressured by concerns over the economic fallout from the European Union’s recent trade agreement with the United States.
Market Drivers
Investor focus shifted to U.S. fundamentals after recent clarity on tariff policies and trade relations. The euro’s weakness coincided with renewed strength in the dollar, as traders positioned ahead of key U.S. data.
U.S. consumer confidence figures for July are expected to show improvement, while Tuesday’s Job Openings and Labor Turnover Survey (JOLTS) is forecast to underline the resilience of the labor market.
On Wednesday, the Federal Reserve is widely expected to hold interest rates steady, with growth and inflation data likely reinforcing the view of a buoyant economy.
Derek Halpenny, Head of Global Markets Research at MUFG, said, “For now at least, the focus for FX market participants has shifted away from the trade uncertainty and on to the resilience of the U.S. economy. That is clearly helping to prompt some short dollar position liquidation built up through the first half of the year.”
Treasury Movements
U.S. Treasuries traded mixed, marginally outperforming UK and European government bonds. Yields on two-year Treasuries dipped by 1 basis point to 3.92 percent as traders maintained a 60 percent probability of a Federal Reserve interest-rate cut in September.
Broader FX Outlook
The dollar’s recent rally comes after months of weakness in the first half of the year, as investors reassessed the policy outlook and global trade dynamics.
The U.S.-EU trade deal, finalized on Sunday, and the likely 90-day extension of a tariff truce with China, provided added support to market sentiment.
The euro’s decline underscores concerns that Europe may face economic headwinds from shifting trade arrangements, even as the U.S. economy shows signs of continued strength.
