Euro rallies as investors flee US assets amid trade turmoil

The euro extended its rally, breaking above the $1.14 mark for the first time since late January 2022. It was poised for an over 3.5% weekly gain amid a turbulent end to a week marked by escalating global trade tensions, which have rekindled fears of a deep recession and shaken investor confidence in U.S. assets.

Euro rallies as investors flee US assets amid trade turmoil

The euro’s strength was driven by a combination of factors, including the broader market reaction to the intensifying trade war between the U.S. and China, and the flight of capital from the U.S. dollar as investors sought alternatives amid the growing uncertainty. Earlier in the week, President Donald Trump announced a 90-day freeze on a range of planned U.S. tariff hikes to allow room for trade negotiations, a move that briefly lifted hopes of a resolution. However, Washington simultaneously raised duties on Chinese goods to 145%, stoking fears that a comprehensive deal remained far off. In response, Beijing imposed a new 125% levy on U.S. products, escalating the trade dispute further. The ongoing trade war has cast a shadow over the global economic outlook, with markets increasingly concerned about the potential long-term effects on growth. The EU, for its part, suspended its own planned tariffs on American goods in an effort to encourage dialogue, though it was clear that the trade conflict had no quick resolution in sight.

Bagarre on tariffs

French President Emmanuel Macron warned that Trump’s decision to freeze tariffs amounted to only a “fragile pause,” stressing that business confidence would remain under strain as uncertainty continued to weigh on market sentiment. Macron’s comments highlighted the broader concerns across Europe that the trade war, even with a temporary truce, would have lingering effects on the global economy. Meanwhile, the EU reaffirmed its position that it would not compromise on its digital regulatory framework as part of any potential trade agreement with the U.S., signaling that the digital economy and technology regulation would remain key points of contention in future negotiations. As the trade tensions continued to develop, the euro benefited from its status as a safe-haven currency, with investors shifting away from the U.S. dollar in search of stability. The weaker dollar, combined with the euro’s relative resilience, helped the single currency extend its rally. With the ongoing uncertainty surrounding the U.S.-China trade relationship and its potential impact on the global economy, the euro’s strength may continue in the short term, though much will depend on the outcome of future negotiations and the broader economic data from both the U.S. and the Eurozone.