EUR: Still plenty of uncertainties - MUFG

The European Commission yesterday published an EU-US trade deal outline explaining some of the key elements. The piece interestingly refers to the 'political agreement' reached and not an economic one or even a trade agreement. The key commitments are therefore political commitments - the point being that the deal as it stands has no legal basis as of yet, MUFG's FX analysts Derek Halpenny and Abdul-Ahad Lockhart report.

Markets are relieved that deals are being done

"The outline confirms a work toward a quota-based deal on trade in steel, aluminium and copper in order to protect both the US and EU markets from overcapacity. But there remains no timeline on this being implemented. The 3-year purchase of LNG, oil and nuclear energy products worth USD 750bn is confirmed and the commitment to make a further USD 600bn worth of investments will be done over a period to 2029."

"The final paragraph is important with the EU stating that the political agreement is not legally binding and that beyond the immediate actions committed, the EU and the US 'will further negotiate, in line with their relevant internal procedures, to fully implement the political agreement'."

"So, it's clear from this deal and the lack of detail in parts of the US-Japan deal that ongoing negotiations are likely which may well include renewed threats in the future over tariff rates. We also have the oral legal hearings tomorrow in relation to the legality of using the IEEPA by describing trade deficits as a national emergency. For now, the markets are relieved that deals are being done, but in time investors may well question the extent and longevity of some of these deals."