US-EU trade deal puts Euro rally on hold

The euro’s strong 2025 rally has hit a roadblock after the EU and U.S. agreed on new trade terms, including a 15% tariff on European exports to America. While lower than initially feared, the tariffs are still a significant jump from pre-Trump levels, raising concerns about the euro’s continued strength.

The currency recently hit a four-year high but has since dropped sharply, putting it on track for its first monthly loss this year. Earlier gains were fueled by Germany’s fiscal stimulus and investor skepticism toward U.S. trade policies, but the new deal has eased some of those dollar worries.

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Market positioning had become extremely bullish, with speculators holding the largest long position in euros since late 2023. But this week’s sell-off suggests the trade was overcrowded, leaving the euro vulnerable to a deeper correction.

Now, attention turns to upcoming U.S. economic data and the Federal Reserve’s policy meeting. If the Fed resists pressure to cut rates, it could reignite dollar volatility. Meanwhile, Europe’s outlook isn’t entirely dim—Germany’s spending plans still offer support.

For now, the euro’s rally is on pause, but whether this is a temporary setback or the start of a larger reversal depends on how economic conditions and central bank policies evolve.