The euro dropped below the $1.08 mark following reports that White House aides are proposing tariffs of around 20% on most U.S. imports, though no final decision has been made.
Euro weakens as US tariffs loom
Investors are closely monitoring developments surrounding President Trump’s upcoming reciprocal tariffs, which are set to take effect on April 2. These tariffs follow last month’s imposition of levies on aluminum, steel, autos, and an increase in tariffs on all Chinese goods, signaling a more aggressive trade stance by the U.S. The uncertainty surrounding the potential for further tariff escalations is weighing on investor sentiment and contributing to the euro’s decline.
In parallel, economic data revealed that Eurozone consumer price inflation eased to 2.2% in March, the lowest level since November 2024. This slowdown was primarily driven by a deceleration in the growth of service prices, which had been a significant contributor to inflationary pressures in recent months. Core inflation, which excludes volatile food and energy prices, dropped more than expected to 2.4%, marking its lowest reading since January 2022. The cooling of inflationary pressures in the Eurozone has contributed to growing speculation that the European Central Bank (ECB) may take action to further ease monetary policy in response to slowing price growth and persistent global trade uncertainties.
Expectations on next ECB moves
With inflationary pressures cooling and global trade tensions escalating, expectations for a rate cut from the ECB have gained momentum, with markets pricing in a potential reduction of up to 65 basis points this year. This would mark a shift from the ECB’s previous tightening stance, as the central bank faces a delicate balancing act between supporting economic growth and managing inflation expectations in the face of external risks.
On a more positive note, the euro gained 3% in March, supported by broad dollar weakness amid shifting U.S. tariff policies and Germany’s approval of a major fiscal package. The fiscal stimulus, aimed at boosting the German economy, has provided some relief to the broader Eurozone outlook, helping to offset concerns about slowing global trade. The euro’s resilience, despite the potential for further trade tensions and policy uncertainty, highlights the broader market sentiment that is weighing the risks of trade disruptions against the prospects of economic stimulus within the Eurozone. However, the overall outlook for the currency remains closely tied to developments in both global trade and central bank policy.
