U.S.–EU Tensions Pressure the Euro; Crude Oil Extends Four-Day Rally

Market Overview

The sharp rebound triggered by Fed Chair Powells remarks last Friday proved to be a “one-day wonder.” On the first trading day of the week, all three major U.S. equity benchmarks retreated, with the Dow Jones Industrial Average pulling back from record highs. President Trump reiterated his pledge to significantly lower drug prices, dragging Merck shares down more than 2% and leading losses among Dow constituents, while large-cap tech stocks posted mixed performances.

As sentiment shifted, U.S. Treasury prices slipped, pushing yields off one-week lows. The U.S. Dollar Index staged a strong rebound, climbing out of its monthly trough. On the geopolitical front, reports that Washington is weighing sanctions on EU officials sent the euro tumbling nearly 1% intraday. Meanwhile, the offshore yuan strengthened, breaking through the 7.15 level for the first time in a month. In digital assets, cryptocurrencies broadly pulled back, with Ethereum dropping more than 10% from last Fridays record high. Commodities diverged: gold futures retreated from a two-week peak, while crude oil defied the trend to notch a fourth straight gain, hitting a three-week high.

Hot Topics Ahead

Trump Administration Reportedly Considering Sanctions on EU Officials

Friction between Washington and Brussels may escalate further following the EUs new Digital Services Act (DSA). The U.S. has raised two main objections:

Speech Oversight – Washington argues the DSA imposes “undue” restrictions on free expression, amounting to censorship of U.S. voices.

Corporate Burden – The U.S. contends the law places heavy compliance costs on American tech firms such as Meta, effectively forcing them into content regulation.

According to reports, senior U.S. State Department officials held an internal meeting last week to discuss possible retaliatory measures, including “visa restrictions” targeting EU and member state officials. Such action could further strain already fragile U.S.–EU ties, which have been tested by disputes over tariffs and tech regulation. In FX markets, the euro fell nearly 1% against the dollar on the news, last trading at 1.1619.

Pharmaceutical Stocks Sink on Trumps Drug Price Pledge

On Monday, President Trump vowed to slash U.S. drug prices by as much as 1,400% to 1,500%, stressing he is “serious about tackling drug costs.” He also warned of potential tariffs on pharmaceuticals. His comments sparked a sharp sell-off in healthcare shares, with the S&P 500 Health Care sector dropping more than 1.3% at one point, while several major pharmaceutical giants saw their stock prices tumble.

Key Data to Watch

20:30 GMT+8 – U.S. July Durable Goods Orders (MoM)

21:00 GMT+8 – U.S. June FHFA House Price Index (MoM); U.S. June S&P/Case-Shiller 20-City Home Price Index (YoY, NSA)

22:00 GMT+8 – U.S. August Conference Board Consumer Confidence Index; U.S. August Richmond Fed Manufacturing Index