Euro Steady as Trump’s Car Tariffs Loom Next Week

The Euro Stays Steady as Trade Dispute Looms

Currency Markets React to Tariffs

The euro was steady on Thursday, rising off a three-week low earlier in the day, as the world braced for a potential trade war. The US President Donald Trump’s 25% tariff on imported cars and light trucks is set to take effect next week, widening a global trade dispute.

The currency market reaction to the duties was largely muted, with most of the action centered around share prices of carmakers. Traders were uncertain about whether the news was more negative for the greenback or for US trading partners.

Currency Updates

The euro was 0.3% higher at $1.0787, after touching a three-week low of $1.0733 in early trading. The yen was weaker at 151.060 per dollar. The Mexican peso weakened to 20.2120 per US dollar. The Canadian dollar was softer at 1.4285 per US dollar.

US Auto Industry Impacted

The US imported $474 billion of automotive products in 2024, including passenger cars worth $220 billion. Mexico, Japan, South Korea, Canada, and Germany – all close US allies – were the biggest suppliers.

US Dollar Index

The US dollar index, which measures the US currency against six rivals, was at 104.34, down 0.29% on the day. The index touched a three-week high in the previous session.

Investor Focus Shifts to Reciprocal Tariffs

Investor focus will now shift to the reciprocal tariffs due to be announced next week. Trump indicated the measures may not be the like-for-like levies he has been pledging to impose.

Expert Analysis

Nick Rees, head of macroeconomic research at Monex Europe, said: "We hear these kinds of stories, the immediate reaction from markets is dollar negative impacts on US growth fears, but being very cautious to price in the dollar positive impact that we would ultimately expect with tariffs. Next couple of days, if we do see these tariffs, and they do proof sticky, and we think they will do, it should be euro/dollar downside. Somewhere around $1.03 per euro over the next few weeks ‘would not be unreasonable’ for the currency pair, he added."

Conclusion

The euro and other currencies are likely to remain volatile as the trade dispute continues to unfold. Investors will be closely watching the reciprocal tariffs due to be announced next week and how they affect the global economy.

FAQs

Q: What is the impact of the trade tariffs on the US economy?
A: The tariffs may dent US growth and stoke inflation, but the prospect of narrower-than-feared tariffs has buoyed sentiment recently.

Q: How will the tariffs affect the automotive industry?
A: The US imported $474 billion of automotive products in 2024, including passenger cars worth $220 billion. Mexico, Japan, South Korea, Canada, and Germany – all close US allies – were the biggest suppliers.

Q: What is the current exchange rate?
A: The euro was 0.3% higher at $1.0787, after touching a three-week low of $1.0733 in early trading.

Q: How will the tariffs affect the US dollar?
A: The US dollar index was at 104.34, down 0.29% on the day. The index touched a three-week high in the previous session.