European negotiators struck an eleventh-hour trade deal with the United States this weekend that will reduce the charges levied on a wide range of goods to 15%. The deal is similar in structure to the recent agreement with Japan, except it requires the European Union to spend almost $1.5 trillion on American energy products and military equipment.
Despite the major concessions President Trump managed to obtain, the agreement removes – or softens, at least – one of the largest risks the eurozone faces this year. The euro strengthened overnight to its highest level against the pound since November 2023.
Last week, the International Monetary Fund (IMF) stuck its oar into the issue of government spending, arguing that “tough fiscal choices” would have to be made at the autumn statement. The IMF’s annual report on the British economy suggested a number of eye-catching policy tweaks, including reforming the pension triple lock and charging higher earnings to use the NHS.
After the European Central Bank held interest rates at 2% last week, the German Ifo business climate survey edged up to 88.6 in July. While that came in slightly under expectations, it still marked the highest score since May 2024.
Orders of durable goods in the United States plummeted by almost 10% in June, led by falls for transport equipment and aircrafts. Trade negotiations have contributed to remarkable volatility in this area. Just last month, orders of durable goods climbed by over 10%.
Stock markets have performed incredibly well in July. Perhaps too well. Some analysts are now highlighting what they see as froth (i.e. undue or excessive valuations) in tech equities and cryptocurrencies. Last week ended with comparisons to other asset bubbles that would later burst.
Aside from keeping an eye out for froth, currency markets will be monitoring a number of European growth reports due this time out. Germany, France, Italy, and the eurozone as a whole all report preliminary GPD numbers for the second quarter of the year on a busy Wednesday morning.
The United States will also report its initial growth read for the second quarter, which should be interesting in light of the toing and froing over trader. However, this report may ultimately be overshadowed by the Federal Reserve’s interest rate decision on Wednesday evening, and the likelihood that President Trump will renew his war of words with Jerome Powell (more on that below).
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