Euro Jumps 2% Against Dollar

[LONDON] The euro rallied more than 2 per cent against the dollar on Thursday (Apr 3) and was set for its best day in more than nine years as investors shunned the greenback after President Donald Trump announced harsher-than-expected tariffs on US trading partners.

Tariffs Send Markets into Chaos

Investors also flocked to safe haven units such as the yen and Swiss franc as the dollar weakened to six-month lows against both those currencies.

The highly anticipated tariff announcement sent shockwaves through markets, with global stocks sinking and investors scrambling to the safety of bonds as well as gold.

Trump’s Tariff Plan

Trump said he would impose a 10 per cent baseline tariff on all imports to the United States and higher duties on some of the country’s biggest trading partners.

The new levies rattled markets on fears a full-blown trade dispute could trigger a sharp global economic slowdown and fuel inflation.

Currency Market Reaction

The euro gained 2.2 per cent to a six-month high of US$1.1021, its biggest intraday advance since December 2015. The dollar fell 1.8 per cent on the Japanese yen to 146.65, and 2.25 per cent on the Swiss franc to 0.8618.

Both safe havens were at their strongest on the greenback in six months.

Britain’s pound also gained 1.3 per cent to 1.3178.

Market Analysis

Deutsche Bank warned on Thursday of the risk of a crisis of confidence in the US dollar, saying major shifts in capital flow allocations could take over from currency fundamentals and currency moves become disorderly.

“Eye-watering tariffs on a country-by-country basis scream ‘negotiation tactic’, which will keep markets on edge for the foreseeable future,” said Adam Hetts, global head of multi-asset and portfolio manager at Janus Henderson Investors.

“Negotiations are now going to be front of mind. This is probably the other big part of why we’re seeing some of these currencies outperform,” said Nicholas Rees, head of macroeconomic research at Monex Europe.

“It’s very difficult actually to see how other countries make concessions that would encourage the US to lift these tariffs. And I think that’s a big underpriced risk.”

Conclusion

The tariff announcement has sent shockwaves through global markets, with investors flocking to safe havens and currencies such as the euro, yen, and Swiss franc gaining strength. The impact of the tariffs on global trade and the economy remains to be seen, but analysts warn of the risk of a full-blown trade dispute and a sharp economic slowdown.

FAQs

Q: What did President Trump announce on Thursday?
A: Trump announced harsher-than-expected tariffs on US trading partners.

Q: How did the currency market react to the announcement?
A: The euro gained 2.2 per cent, the dollar fell 1.8 per cent on the Japanese yen, and 2.25 per cent on the Swiss franc.

Q: What is the impact of the tariffs on global trade?
A: The tariffs could trigger a sharp global economic slowdown and fuel inflation.

Q: How did other countries react to the announcement?
A: EU chief Ursula von der Leyen described the tariffs as a major blow to the world economy and said the 27-member bloc was prepared to respond with countermeasures if talks with Washington failed.