Euro extends losses as US-EU trade pact fuels US Dollar demand, Fed decision in focus

• The Euro weakens for a second consecutive day against the US Dollar (USD), trading near its lowest level since June 23.
• EUR/USD posted a 1.30% drop on Monday, its sharpest single-day loss since May, amid fallout from the US-EU trade agreement.
• US JOLTS Job Openings fell to 7.437 million in June, below expectations, indicating a slow labor market cooldown.

The Euro (EUR) edges lower for the second straight day against the US Dollar (USD) on Tuesday, as the Greenback extended its rally following the US-EU trade agreement, which has faced heavy criticism across Europe for being one-sided and heavily skewed in favor of the United States (US). The EUR/USD pair dropped 1.30% on Monday -- its steepest single-day decline since May -- as markets reassessed the economic and geopolitical implications of the transatlantic deal. As of now, the pair is trading near 1.1532, its lowest level since June 23, down nearly 0.50%.

The move comes in response to Sunday's announcement of a sweeping trade framework between US President Donald Trump and European Commission (EC) President Ursula von der Leyen. Under the agreement, the US will impose a flat 15% tariff on a wide range of EU exports--including automobiles, machinery, and consumer goods marking a sharp increase from the average 1.2% tariff rate in 2024.

In exchange, the European Union (EU) pledged to purchase $750 billion worth of US liquefied natural gas (LNG) over the next three years and invest $600 billion in key American sectors such as energy, defense, and manufacturing. The $600 billion will come entirely from private funds. According to European Commission Commerce Commissioner Maroš Šefčovič and EC officials speaking to Politico, the European Commission will play no role in reaching the $600 billion, and the amount will come from private companies.

Positioning data from the US Commodity Futures Trading Commission (CFTC) adds another bearish signal to the EUR/USD outlook. As of July 22, large speculators held over 128,000 net-long Euro futures contracts, reflecting strong bullish sentiment going into the week. But with the Euro now under pressure, the market appears to be starting a positioning unwind, as traders book profits after the Euro's strong first-half rally, which was largely driven by a weaker US Dollar.

Fresh US economic data released Tuesday offered a mixed but overall supportive backdrop for the US Dollar. The JOLTS Job Openings report showed vacancies declined by 275,000 to 7.437 million in June, signaling a gradual cooling in labor demand. However, the Conference Board's Consumer Confidence Index rose to 97.2 in July, up from 95.2 in June and well above expectations of 95.4, underscoring continued consumer optimism. The combination of stable consumer sentiment and softening labor data suggests the US economy remains resilient, helping sustain bullish momentum in the Greenback.

All eyes now turn to the Federal Reserve's (Fed) policy decision on Wednesday, where the central bank is widely expected to keep interest rates unchanged at 4.25%-4.50%. While no rate move is expected, investors will be closely watching Fed Chair Jerome Powell's forward guidance for any signals about the path ahead, particularly the possibility of interest rate cuts later this year. The Eurozone economic calendar will also come into focus, with the release of the preliminary estimate for the second-quarter Gross Domestic Product (GDP). Alongside GDP, the European Commission is set to publish July figures on Economic, Industrial, and Services Sentiment, providing further insight into business and consumer confidence across the bloc.