The euro hovered near $1.10, its strongest level since early October 2024, as the dollar remained under pressure and investors closely monitored the escalating trade war tensions between the U.S. and China.
Euro remains close to six-month high
On Friday, China announced plans to impose a 34% tariff on all U.S. goods starting April 10, following President Trump’s decision to implement a 10% tariff on all imports, with steeper rates for select countries, including a 20% levy on EU goods and an additional 34% duty on Chinese goods. This move signaled a further intensification of the trade war, prompting significant reactions from global markets.
French President Emmanuel Macron took a strong stance
In Europe, French President Emmanuel Macron took a strong stance, calling on companies to suspend U.S. investments in light of the increasing tariffs. The European Commission, meanwhile, signaled that it was preparing retaliatory measures of its own, further stoking fears of a prolonged trade conflict. Amid these growing tensions, President Trump remained defiant, brushing off concerns about inflation and recession, and maintaining a confident outlook on the U.S. economy despite the mounting pressure from abroad.
Markets began to price in a significant shift
As the situation unfolded, markets began to price in a significant shift in European monetary policy. Investors are now assigning over a 90% probability to a 25 basis point rate cut by the European Central Bank (ECB) in April. This has led to growing expectations that the ECB’s deposit rate will fall to 1.65% by December, a notable decrease from the current 2.5%. The potential rate cut is seen as a response to slowing economic growth in the eurozone, exacerbated by the trade tensions and global uncertainty. This dovish outlook on European interest rates could further weigh on the euro, but for now, it continues to hold near its highest level against the dollar in several months.
