EUR/USD inches lower to near 1.1600 as traders adopt caution on US-EU trade uncertainty

• EUR/USD struggles as the US Dollar steadies amid market caution on expected US-EU trade developments.
• US Commerce Secretary Howard Lutnick expressed confidence that the US and EU will reach an agreement.
• The US Dollar may face challenges due to the rising dovish tone surrounding the Fed rate outlook.

EUR/USD edges lower after registering gains in the previous session, trading around 1.1620 during the Asian hours on Monday. The pair depreciates as the US Dollar (USD) holds steady, as traders adopt caution due to renewed trade tensions ahead of the US tariff deadline on August 1.

However, US Commerce Secretary Howard Lutnick expressed confidence that the Trump administration will secure trade deals with key US trading partners in the coming weeks before steep tariffs kick in for dozens of countries. "The next two weeks are going to be weeks for the record books. President Trump is going to deliver for the American people," Lutnick said in an interview with CBS News.

Lutnick also expressed confidence that the United States (US) can reach a trade agreement with the European Union (EU), though he emphasized that August 1 remains a firm deadline before tariffs take effect. He mentioned that he had just spoken with European trade negotiators and believes there is "plenty of room" for compromise. "These are the two largest trading partners in the world in talks. We'll get a deal done. I'm confident of that," he said.

However, the downside of the EUR/USD pair could be restrained as the US Dollar (USD) may lose ground due to renewed sentiment for the Federal Reserve's (Fed) rate cuts following dovish comments from the Fed officials.

Last week, San Francisco Fed President Mary Daly said that expecting two rate cuts this year is a "reasonable" outlook, while warning against waiting too long. Daly added that rates will eventually settle at 3% or higher, which is higher than the pre-pandemic neutral rate.

Fed Governor Christopher Waller also said that the labor market is doing fine overall, but less so in the private sector. The Fed should reduce its interest rate target at the July meeting, citing mounting economic risks, Waller added.