HG MARKETS:

Markets have responded positively to news of a finalized US-EU trade deal, which, while widely expected based on last week’s rumors, brought welcome relief amid months of escalating trade tensions. The agreement features a baseline tariff rate of 15% and a strong commitment from the EU to increase purchases of US goods and energy. Compared to the much steeper 30-50% tariffs previously threatened, the deal offers a more measured resolution. However, it still aligns with the broader protectionist stance discussed in late 2024, particularly the universal tariff regime floated during that period.

While the trade agreement offers a temporary tailwind for risk sentiment, the focus now shifts to an unusually packed US macroeconomic and monetary policy calendar. A series of critical data releases and a pivotal Federal Reserve meeting are expected to guide dollar movements through the week.

The economic schedule begins with JOLTS job openings data on Tuesday, which will offer insight into labor market resilience. A key highlight comes Wednesday, with the release of second-quarter GDP figures. Expectations point to a rebound in growth, offering a chance to validate the Fed’s wait-and-see approach. Inflation data follows on Thursday in the form of core PCE – the Fed’s preferred inflation measure. Forecasts suggest a stickier monthly reading of 0.3% for June, indicating that inflationary pressures remain persistent despite tighter policy.

All of this data culminates in the Federal Open Market Committee (FOMC) meeting on Wednesday. With inflation appearing firm and growth stabilizing, the Fed is widely expected to maintain its patient stance. Consequently, the likelihood of a rate cut in September continues to diminish, supporting a higher-for-longer interest rate narrative.

Looking beyond this week, August is traditionally a quieter month for markets. Current expectations reflect that sentiment, with investors likely to shift attention toward yield-driven strategies. However, elevated short-term interest rates—currently around 4.37% on a one-week annualized basis—make the US dollar a less attractive funding currency for carry trades.

In this environment, analysts anticipate a phase of consolidation for the greenback. If incoming data confirms solid growth and stubborn inflation, the DXY (US Dollar Index) could grind back toward the 98.50–99.00 range. Overall, a blend of trade relief, macro resilience, and monetary stability points to a cautiously optimistic outlook for the dollar in the near term.