The euro traded above $1.17, remaining close to its highest level since August 2021, as optimism grew over a potential trade agreement between the US and the European Union following the announcement of a US-Japan deal. However, investor caution lingered ahead of renewed tariff negotiations between Washington and Brussels, amid reports that the EU is preparing countermeasures in case talks stall before the August 1 deadline. Meanwhile, markets are focused on Thursday’s European Central Bank policy decision and the release of flash PMI data from the eurozone’s largest economies. The ECB is widely expected to keep interest rates unchanged after eight consecutive cuts, as policymakers weigh the potential impact of steeper-than-expected US tariffs and a stronger euro on growth and inflation. Money markets are fully pricing in a 25 basis point rate cut by December, with roughly a 50% chance of it coming as early as September.