- The greenback gained on Monday after the US signed a trade deal with the European Union.
- Market participants are focused on the upcoming FOMC policy meeting.
- Major events this week include the BoC and BoJ meetings.
Currency futures fell on Monday as the dollar rallied on optimism about the trade deals. The US signed yet another trade deal with the European Union over the weekend, easing concerns about a slowdown in the US economy. At the same time, market participants were preparing for the Fed policy meeting where Powell might keep rates unchanged and maintain his cautious tone.
The greenback gained on Monday after the US signed a trade deal with the European Union, easing worries about a trade war. Initially, top EU officials had said they were preparing to retaliate if there was no trade deal before the deadline. Such an outcome would have ignited a trade war, hurting both economies.
However, the partners agreed to a 15% tariff on EU goods, rather than the threat of a 30% tariff. The agreement comes soon after Japan signed a similar deal with the US. These trade deals have restored investor confidence in the US economy.
“If more ‘trade deals’ are reached, this could help to reduce this source of policy uncertainty that has weighed against the dollar, at least for now,” said Paul Mackel, global head of FX research at HSBC.
Furthermore, market participants are focused on the upcoming FOMC policy meeting. Recent US data has pointed to economic resilience, which has convinced many that the Fed will maintain a cautious tone.

US jobless claims (Source: US Labor Department)
Last week, data showed that unemployment claims decreased for the sixth consecutive week. This report indicated strength in the labor market, leading to a decline in Fed rate cut bets. Traders expect the Fed to keep rates unchanged this week. Moreover, a hawkish tone might further strengthen the dollar.
At the same time, the US will release its crucial monthly employment report this week. The reports will show the state of the labor market, which has shown resilience in the face of tariffs. Another upbeat report is likely to push the dollar higher.
Other major events this week include the Bank of Canada meeting. The central bank will likely continue its pause. Therefore, traders will focus on the messaging for future moves. The same will happen for the Bank of Japan. Meanwhile, Australia will release crucial inflation figures.