Markets Rebound as U.S.–EU Trade Deal Calms Protectionist Fears

Global equity markets climbed and the euro strengthened sharply on Monday after the United States and European Union finalized a tariff-reduction deal, calming investor concerns about rising trade protectionism. The agreement, which implements a uniform 15% tariff on most EU-manufactured goods exported to the U.S., is being hailed as a crucial step toward easing transatlantic trade tensions.

The Stoxx Europe 600 gained 1.2%, while Germany’s DAX surged 1.4%, led by automakers and industrials. On Wall Street, major U.S. indices also opened higher as investor appetite for risk assets returned amid signs of diplomatic progress between two of the world’s largest trading blocs.

Euro Climbs Against Dollar and Yen

The euro rose over 0.6% against the U.S. dollar, breaking through a two-week high, and advanced more modestly against the Japanese yen. Currency traders welcomed the reduced uncertainty surrounding U.S.–EU trade relations, which had been a lingering drag on the eurozone’s export-driven economy.

Analysts noted that the 15% tariff level is significantly lower than the 25% rates previously proposed by U.S. trade officials, reflecting a compromise that protects core European industries while restoring confidence in global trade frameworks.

Investor Focus Shifts to Central Bank Meetings

Following the tariff news, investor attention has now pivoted to upcoming central bank decisions. Both the U.S. Federal Reserve and the Bank of Japan (BoJ) are scheduled to meet later this week, with markets largely expecting no changes to interest rates.

While the Fed is expected to maintain its current policy stance, Chair Jerome Powell’s post-meeting remarks will be closely scrutinized for any signs of a shift in inflation outlook or rate trajectory for the final quarter of 2025.

Meanwhile, the BoJ faces mounting pressure to reassess its yield curve control strategy, especially as core inflation in Japan edges closer to the central bank’s 2% target.

Sectors Benefiting from Tariff Reprieve

European automakers, industrial exporters, and consumer goods manufacturers saw some of the biggest gains from the trade agreement announcement. Companies like Volkswagen, Siemens, and LVMH led the regional benchmark higher as reduced tariffs offered a clearer export outlook.

In the U.S., S&P 500 futures rose 0.8%, with materials and industrials outperforming in early trading. The Dow Jones Industrial Average added over 250 points, reflecting optimism that trade diplomacy can support global demand and corporate earnings into Q3.

Conclusion: Cautious Optimism as Trade Tensions Ease

The U.S.–EU tariff agreement represents a key win for international cooperation, especially in a climate where trade fragmentation has been a growing risk to global growth. While investors remain cautious ahead of major central bank meetings, Monday’s rally in both equities and the euro underscores a return of optimism to global markets.

Should central banks stay on hold and refrain from hawkish surprises, the positive momentum sparked by the trade deal could extend into early August, providing a potential boost to risk assets and cross-border commerce.