The euro edged higher, approaching $1.08, supported by broad dollar weakness as the trade war between the US and its trading partners escalated. The Trump administration announced a 25% tariff on "all cars not made in the United States," set to take effect on April 2, and threatened "far larger" tariffs on the EU and Canada if they coordinated efforts to counter US trade measures.
Euro edges higher on Thursday
This move has fueled concerns over the potential for further global trade disruptions. In response, the European Union is expected to retaliate with its own tariffs as early as next week. European Commission President Ursula von der Leyen vowed to protect the EU’s workers, businesses, and consumers, while also continuing to push for a negotiated resolution to avoid a full-blown trade war. The EU’s response is likely to have significant economic ramifications, particularly for Germany, which stands to be hit hardest by the tariffs. Nearly a quarter of the EU’s vehicle exports go to the US, and Germany, as Europe’s largest economy, is heavily reliant on exports, with the US being its most important export market for automobiles. The escalating trade tensions are already casting a shadow over the European economy, potentially dampening growth prospects.
Eyes on ECB
On the monetary front, the European Central Bank (ECB) lowered borrowing costs by 25 basis points in March, in line with expectations, to stimulate economic activity amid the uncertain global trade environment. ECB official Cipollone suggested that the case for another rate cut is strengthening, particularly if the economic outlook worsens further due to the intensifying trade war. The ECB's policy stance reflects growing concerns about the negative impact of trade tensions on the European economy, as well as the challenge of managing inflation and growth in the face of external shocks. With inflation still below target and economic growth sluggish, the ECB may have to take more aggressive steps to support the eurozone in the coming months.
