EUR/USD nears $1.10 as tariff risks weigh on dollar and volatility
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The euro continued its ascent against the US dollar early Tuesday, buoyed by escalating trade tensions that have shifted market sentiment in favor of European assets. As the EUR/USD pair edged closer to the psychological threshold of 1.10, investor focus remained on the rising likelihood of a full-scale tariff confrontation involving the US, China, and the EU — a scenario that threatens to redefine macroeconomic expectations across currency markets.
The euro gained 0.6% intraday, extending its recent uptrend driven by weakening confidence in the greenback. The market reaction followed fresh remarks from US President Donald Trump, who vowed to intensify the ongoing tariff campaign against China by hiking existing duties by an additional 50%. Should these measures be implemented, certain goods imported from China would face cost surges of up to 120%, posing significant inflationary risks for US consumers and businesses. China's swift response, promising resolute countermeasures, confirmed the growing likelihood of sustained bilateral escalation.
European policymakers, meanwhile, responded in kind. On Monday, the European Union proposed a 25% retaliatory tariff on a diverse array of US products, ranging from aluminum to agricultural goods. While the specifics may appear symbolic — including items like dental floss and sausages — the strategic message is clear: Europe is prepared to defend its trade interests, with or without US cooperation.
These developments come at a time when the US dollar is already under pressure. Since early February, the greenback has depreciated nearly 8% against the euro, a reflection of both rising political risk and expectations of a policy pivot from the Federal Reserve. Markets are increasingly pricing in a Fed rate cut as early as May, with futures indicating over 100 basis points in potential easing by year-end. While the dollar typically enjoys safe-haven status in periods of uncertainty, recent moves suggest that role is being reassessed, particularly as fears of stagflation take hold.
From a trading perspective, the EUR/USD pair remains sensitive to news flow, especially ahead of Wednesday’s potential implementation of the new US tariffs. Traders should monitor the 1.10 level closely. A sustained break above could trigger momentum-driven inflows, potentially targeting the 1.1150 zone in the medium term. Conversely, should volatility spike and safe-haven flows return to the dollar, support near 1.0840 may be tested.
With the geopolitical environment growing increasingly complex and economic consequences of trade policy becoming harder to quantify, forex markets are likely to remain volatile. For now, the euro benefits from the dollar’s uncertainty — but traders should be prepared for swift shifts in narrative as new developments unfold.
The euro gained 0.6% intraday, extending its recent uptrend driven by weakening confidence in the greenback. The market reaction followed fresh remarks from US President Donald Trump, who vowed to intensify the ongoing tariff campaign against China by hiking existing duties by an additional 50%. Should these measures be implemented, certain goods imported from China would face cost surges of up to 120%, posing significant inflationary risks for US consumers and businesses. China's swift response, promising resolute countermeasures, confirmed the growing likelihood of sustained bilateral escalation.
European policymakers, meanwhile, responded in kind. On Monday, the European Union proposed a 25% retaliatory tariff on a diverse array of US products, ranging from aluminum to agricultural goods. While the specifics may appear symbolic — including items like dental floss and sausages — the strategic message is clear: Europe is prepared to defend its trade interests, with or without US cooperation.
These developments come at a time when the US dollar is already under pressure. Since early February, the greenback has depreciated nearly 8% against the euro, a reflection of both rising political risk and expectations of a policy pivot from the Federal Reserve. Markets are increasingly pricing in a Fed rate cut as early as May, with futures indicating over 100 basis points in potential easing by year-end. While the dollar typically enjoys safe-haven status in periods of uncertainty, recent moves suggest that role is being reassessed, particularly as fears of stagflation take hold.
From a trading perspective, the EUR/USD pair remains sensitive to news flow, especially ahead of Wednesday’s potential implementation of the new US tariffs. Traders should monitor the 1.10 level closely. A sustained break above could trigger momentum-driven inflows, potentially targeting the 1.1150 zone in the medium term. Conversely, should volatility spike and safe-haven flows return to the dollar, support near 1.0840 may be tested.
With the geopolitical environment growing increasingly complex and economic consequences of trade policy becoming harder to quantify, forex markets are likely to remain volatile. For now, the euro benefits from the dollar’s uncertainty — but traders should be prepared for swift shifts in narrative as new developments unfold.