US and Japan reach common ground on tradeHopes for more deals increase; US-EU talks loomYen gains, but temporarily as PM Ishida may step downEquities gain on US-Japan deal; Key tech earnings in focusUS and Japan Agree on Trade; is EU Next?The US dollar fell against all its major peers yesterday, and although it seems to be stabilizing against most today, it is extending its slide against the risk-linked Australian, New Zealand and Canadian dollars.This suggests an improving risk appetite and may be the result of a trade deal between the US and Japan, announced during the Asian session today. In a post on his Truth Social platform, US President Trump said that a 15% tariff rate on imports from Japan was agreed, which is lower than the 25% rate that was expected to kick in on August 1. Trump also added that Japan will invest $550 billion in the US.The US-Japan accord has fueled hopes for more deals ahead of the August 1 tariff deadline, with the spotlight now turning to the European Union (EU), as representatives from the bloc will visit Washington today for discussions.The prospect of more deals may be easing concerns about tariff-induced inflation. However, Fed funds futures suggest that investors remain unconvinced about any imminent policy shift. They still believe that the Federal Reserve (Fed) will remain sidelined next week, while assigning a 65% chance of a quarter-point reduction in September.Should today’s talks with the European Union yield an agreement, or at least meaningful progress, investors may grow more confident that inflation risks are under control. This could reinforce expectations for a September rate cut and potentially trigger further dollar weakness.ECB Awaits Trade-talk Results Ahead of Rate DecisionProgress in US-EU trade talks could also influence the European Central Bank’s (ECB) policy stance at tomorrow’s meeting. Although the Bank is widely anticipated to refrain from acting, investors remain uncertain about how Trump’s threats of a 30% tariff on August 1 will shape the Bank’s forward guidance.According to Eurozone money markets, investors expect the ECB to cut interest rates by another 25bps in December before ending this easing cycle. Thus, positive vibes from Washington today may allow President Lagarde to appear less concerned tomorrow, which means that traders are unlikely to rush into bringing forward their rate cut bets. Combined with further dollar weakness, this may allow euro/dollar to get closer to the high of July 1 at 1.1830.Yen Gains on BoJ Hike Bets, Pulls Back on Ishiba ReportsThe Japanese yen strengthened after Trump announced the US-Japan trade deal, as the agreement reduces downside risks to the already-fragile Japanese economy and clears the way for the Bank of Japan (BoJ) to hike interest rates again before year-end. According to Japan’s Overnight Index Swaps (OIS) market, the probability of a 25bps hike by December has climbed to 80%.However, the yen quickly gave back its gains after reports emerged that Japanese Prime Minister Ishiba is planning to step down next month. This would increase the likelihood of a looser fiscal stance and a slower exit from monetary accommodation, potentially limiting the yen’s ability to mount a sustained recovery. While it may still outperform a potentially weak US dollar, a strong recovery against the euro and commodity-linked currencies appears less likely.Speaking of commodity-linked currencies, both the Aussie and the Kiwi may have drawn extra support from US Treasury Secretary Scott Bessent’s announcement that US and Chinese officials will meet next week to discuss extending the August 12 deadline for negotiating a deal.Stocks Celebrate Trade Developments Ahead of Key EarningsWall Street closed mixed yesterday, but stock futures are rising today alongside European bourses. The upbeat tone reflects the optimism injected into the markets after the US and Japan reached common ground on trade. Japan’s Nikkei recorded gains of 3.6% today.Beyond trade developments, investors will also have to digest earnings from Alphabet (NASDAQ:GOOGL) and Tesla (NASDAQ:TSLA) today, after the closing bell. Regarding Alphabet, they may be on the lookout for clues about how the firm will expand the user base of its own Gemini chatbot without further hurting its traditional search usage. As for Tesla, the spotlight is likely to fall on the 2025 guidance, as well as on the firm’s autonomous driving plans, following reports of erratic driving by robotaxis after the launch in Austin, Texas.