Euro-Dollar Rally Defies Revenge Tax & Tariff Resolution News

File image of Scott Bessent (2nd from R). Picture by Kirsty O'Connor / Treasury.

More good news for the Dollar, but is the FX market listening?

The Euro-to-Dollar exchange rate stomps to fresh multi-year highs as it probes levels above 1.17 and looks set to record a seventh consecutive daily gain.

However, the rally extends into some constructive news for the Dollar that has emerged over the past 12 hours, and we grow increasingly weary of the need for a pullback and consolidation.

"EURUSD is currently trading slightly above our year-end forecast of 1.16, and we expect near-term consolidation. Over the medium term, we continue to see upside risks for EURUSD, with a June 2026 target of 1.20," says Constantin Bolz, Strategist at UBS Switzerland AG.

Senate Finance Committee Chairman Crapo and House Ways and Means Committee Chairman Smith announced that they would remove a provision in Donald Trump's One Big Beautiful Bill to increase taxes on foreign investors, businesses, and governments.

The decision followed Treasury Secretary Scott Bessent's confirmation the U.S. had reached an understanding with G7 countries that OECD Pillar 2 taxes will not apply to U.S. companies.

The tax would have authorised the U.S. Treasury to impose up to a 20% tax on passive income - such as dividends, interest, and royalties - earned by foreign investors from countries identified as having "discriminatory" tax regimes against U.S. firms.

Above: EUR/USD at daily intervals. The RSI indicator in the lower panel is above 70, signalling a technical overbought condition.

Known as a 'revenge tax', it was expected by analysts to accelerate the diversification of investment allocations away from the U.S., potentially exacerbating USD weakness.

The revenge tax was one of the pillars of the USD's 2025 selloff; its axing - and news of resolution to tariff issues - materially raises the odds of a pullback and consolidation in EUR/USD in the near term.

There was more good news for the Dollar after the U.S. and China finalised the trade accord reached last month in Geneva. "We just signed with China yesterday," U.S. President Donald Trump said at the White House on Thursday night.

U.S. Commerce Secretary Howard Lutnick said in a news interview the agreement means China will "deliver rare earths to us," and in response, "we'll take down our countermeasures."

He also said agreements with 10 major trading partners were at hand.

The deals lower the odds of a trade 'cliff edge' on July 09 being reached, when a temporary moratorium on tariffs announced on April 02 ends.

We are seeing increased certainty about the tariff outlook, and investors like certainty, helping U.S. stock markets rally to the record highs seen at the start of the year.

The Dollar's downtrend meanwhile looks entrenched, but the good news of the past 12 hours cannot be completely ignored and the odds of a pullback in the Euro-Dollar next week are high.

Image courtesy of Convera.

"The pair is up nearly 12% YTD, trading well above its major moving averages and brushing the upper edge of its Bollinger band," says Antonio Ruggiero, FX & Macro Strategist at Convera.

The upper band is two standard deviations from the simple moving average of the exchange rate, which captures approximately 95% of the price data when assuming a normal distribution.

Reaching the upper band signals potential overbought conditions and heightened odds of a retreat back to the middle of the range occupied by the moving average.