State Street: Is this trade deal a big deal for the Euro?

State Street: Is this trade deal a big deal for the Euro?

28 juli 2025

Europa Handelsconflict

The weekend announcement that the U.S. and EU had reached a trade agreement, setting a 15% baseline tariff on EU goods entering the U.S., removes a major source of uncertainty for markets.

At several points during the public back-and-forth, a more protracted trade war with significantly higher tariffs seemed possible. That risk, for now, is off the table. While other tariff deadlines still loom, most notably with China, the deal with Europe makes it more likely that the U.S.’s effective tariff rate will ultimately settle in the 15–20% range, rather than the 25%+ levels seen earlier this year.

Tariff news has had an episodic impact on both FX and equity markets over the past nine months. More recently, it has become a stronger driver of equity performance again. With equity allocations already near record highs in our dataset, more positive news could, in theory, further boost sentiment. Interestingly, foreign demand for U.S. equities has started to soften relative to global peers. That’s not surprising: U.S. tariffs were expected to weigh on global growth. If they’re now less severe than feared, at least since April, that’s good news for non-U.S. economies.

Europe, in particular, will be a key test case. Back in April, during the first reassessment of U.S. exceptionalism, European equities were the main beneficiaries, with investors closing their underweights in both stocks and the euro. Still, in both cases, investors hesitated to build overweights.

One reason for that caution may have been the threat of a U.S.-EU trade war. That risk had offset the potential upgrade to European growth expectations stemming from greater fiscal stimulus. Europe has benefited from improved relative growth expectations, largely because it avoided the downgrades seen elsewhere.

Now, with the trade war risk receding and the ECB having proactively returned policy to neutral, the key question is whether European growth expectations will not just hold steady, but begin to rise. The answer starts to take shape today and will likely determine whether investors feel comfortable building overweights in European assets and the euro.

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