The euro struggled to recoup its steep losses early on Tuesday as investors understood that the terms of the trade deal between the U.S. and the European Union favored the former and hardly lifted the economic outlook of the bloc.
France, on Monday, called the framework trade agreement a "dark day" for Europe, saying the bloc had caved in to U.S. President Donald Trump with an unbalanced deal that slapped a headline 15% tariff on EU goods.
German Chancellor Friedrich Merz stated that his economy would suffer "significant" damage due to the agreed-upon tariffs.
The euro slid 1.3% in the previous session, its sharpest one-day percentage decline in over two months, amid concerns about growth and as euro-area government bond yields fell.
The common currency failed to recoup its losses and last traded 0.02% lower at $1.1584.
"It hasn't taken long for markets to conclude that this relatively good news is still, in absolute terms, bad news as far as the near-term implications for eurozone growth are concerned," said Ray Attrill, head of FX research at National Australia Bank.
"The deal has been roundly condemned by France while others – including German Chancellor Merz – are playing up the negative consequences for exporters, and with that, economic growth."
The slide in the euro in turn boosted the dollar, which jumped 1% against a basket of currencies overnight.
The dollar held on to gains on Tuesday and knocked sterling to a two-month low of $1.3338. The yen edged 0.2% higher to 148.22 per dollar.
The dollar index steadied at 98.66.
"While the U.S. dollar's strength ... may reflect the perception that the new U.S.-EU deal is lopsided in favor of the U.S., the U.S. dollar's strength may also reflect a feeling that the U.S. is re-engaging with the EU and with its major allies," said Thierry Wizman, global FX and rates strategist at Macquarie Group.
Still, Trump said on Monday that most trading partners that do not negotiate separate trade deals would soon face tariffs of 15% to 20% on their exports to the United States, well above the broad 10% tariff he set in April.
Elsewhere, the Australian dollar rose 0.04% to $0.6524, while the New Zealand dollar was little changed at $0.5970.
The onshore yuan touched a one-week low of 7.1794 per dollar, with investors awaiting the outcome of trade talks between Washington and Beijing.
Top U.S. and Chinese economic officials met in Stockholm on Monday for more than five hours of talks aimed at resolving long-standing economic disputes at the center of a trade war between the world's top two economies, seeking to extend a truce by three months.
Apart from trade negotiations, investors' focus this week is also on rate decisions from the Federal Reserve (Fed) and the Bank of Japan (BOJ).
Both central banks are expected to stand pat on rates, but traders will watch subsequent comments to gauge the timing of their next moves.
