EUR/USD climbed above 1.1100 on Thursday, marking its highest level since October, as the US Dollar (USD) tumbled in response to sweeping trade tariffs announced by President Donald Trump. The Greenback, measured by the US Dollar Index (DXY), plunged to a six-month low of 101.30, fueling a 2% daily gain for the Euro.
Trump’s tariffs, which include a universal 10% levy on all imports and steep reciprocal duties on key trade partners, have rattled global markets. The Euro gained momentum despite broader concerns about a looming trade war between the US and the European Union (EU).
Trump’s Tariffs Trigger Economic Concerns
On Wednesday, Trump announced reciprocal tariffs targeting nations with substantial trade barriers against US products. Among the hardest hit, the EU faces a 20% levy, China sees a total tariff burden of 54%, and Japan, India, and Vietnam face new duties ranging from 20% to 46%. Additionally, a 25% tariff on foreign-made automobiles and parts is set to take effect on April 3, 2025.
Stephen Miran, Chair of the US Council of Economic Advisers, acknowledged that the tariffs could lead to short-term economic disruptions but defended them as beneficial in the long run. However, market analysts predict that these levies could slow economic growth and potentially push the US toward stagflation—a combination of stagnant economic growth and persistent inflation. Higher import costs are expected to undermine the Federal Reserve’s (Fed) efforts to contain inflation, complicating future monetary policy decisions.
Market Reactions and Key Economic Data Ahead
Investors are closely watching upcoming economic data, including the US Nonfarm Payrolls (NFP) report for March, set for release on Friday. The ADP Employment Change report released Wednesday showed private sector job additions of 155K, exceeding expectations of 105K. This data will influence Fed rate expectations amid growing uncertainty.
On Thursday, traders will scrutinize the S&P Global and ISM Services Purchasing Managers Index (PMI) reports for March. The S&P Global Services PMI is expected to align with the preliminary reading of 54.3, while the ISM Services PMI is forecast to dip to 53.0 from February’s 53.5, suggesting moderate expansion in the US services sector.
Euro Gains Despite Trade War Risks
While the Euro strengthened, EU officials voiced concerns about the economic impact of Trump’s tariffs. European Commission President Ursula von der Leyen warned that the EU is prepared to retaliate if negotiations with Washington fail. She emphasized that countermeasures are already being finalized, particularly in response to the 25% steel and aluminum tariffs imposed by the US on March 12.
Meanwhile, the European Central Bank (ECB) downplayed the potential inflationary impact of tariffs on the Eurozone. ECB policymaker Yannis Stournaras stated that US trade measures would not derail plans for an April rate cut, estimating a GDP impact of just 0.3%-0.4% in the first year.
As trade tensions escalate, investors will remain focused on how the Fed and ECB navigate the shifting economic landscape, with EUR/USD volatility likely to persist in the coming weeks.
