Euro vaults to one-month high after Trump U-turn on EU tariffs

The euro hit a one-month high against the dollar on Monday, after US President Donald Trump backed down from threatened 50 per cent duties on European Union shipments from June 1, after the bloc asked for time to "reach a good deal".

The dollar continued its decline against a broad swathe of other currencies as Trump's policy reversals, as well as his sweeping spending and tax-cut bill currently in legislation, turned investors off from US assets.

"The 'Sell America' theme, which obviously was the dominant theme back in April, is back on show," said Ray Attrill, head of FX research at National Australia Bank. "Markets have probably taken the view - and probably rightly so - that where we land eventually on a tariff situation between the US and the EU is not going to be at 50 per cent, but how we get there is frankly anybody's guess at the moment."

The euro climbed as much as 0.55 per cent to reach $1.1418 for the first time since April 29. It was last up 0.36 per cent on the day at $1.1394, bringing gains for the year so far to 10 per cent.

Sterling rose by 0.39 per cent to its highest level since February 2022 and was last up 0.25 per cent on the day at $1.3574.

The safe-haven yen and Swiss franc were overall weak as market sentiment improved, but they still appreciated against the US dollar.

The greenback slipped as much as 0.24 per cent to 142.23 yen, the lowest level this month, and edged to a 2-1/2-week low of 0.8193 franc.

The US dollar index, which tracks the currency against six other currencies, sank 0.15 per cent to 98.93, extending last week's 1.9 per cent decline.

Trump announced the decision to put off EU tariffs until July 9 on Sunday, following a call with European Commission President Ursula von der Leyen, who asked for more time to reach an agreement. July 9 is the end of the 90-day pause on Trump's April 2 "Liberation Day" levies on the EU and most other trade partners.

The de-escalation, just two days after Trump issued the threat, is a stark reminder of how suddenly US trade policy can turn, even as it encouraged investors that deals can be struck and calmed worries about a global downturn. "Following Trump's latest U-turn, we will, of course, have to wait and see what happens next. It is possible that a deal with the European Union will be reached by 9 July," Commerzbank currency strategist Michael Pfister said.

"However, it is questionable what has changed in terms of the fundamental problems following a phone call. One thing should be clear after Friday's announcement: the brief respite from tariffs that we enjoyed was only temporary," he said.

In a possible nod to fiscal worries among investors, Trump also said on Sunday that his sweeping spending and tax cut bill is likely to see "significant" changes in the Senate.

The House of Representatives' version of the tax bill is calculated to add about $3.8 trillion to the federal government's $36.2 trillion in debt over the next decade, according to the Congressional Budget Office.

"What seems clear from the reconciliation bill ... is that Trump and (Treasury Secretary Scott) Bessent have shifted tactics, swiveling hard from fiscal conservatism and reduced spending to an outright pro-growth policy stance," said Chris Weston, head of research at Pepperstone.

"It is fast becoming a consensus view that the USD is on the path to a multi-year decline."