The euro remains under pressure against the US dollar, recently trading close to 1.1350 in European trading on Tuesday. Analysts cite the continuing tariff war between the United States and China as a major contributor to this weakness. This conflict is creating a lot of volatility and uncertainty in global markets. The FX analyst Antje Praefcke of Commerzbank noted that the tariff spiral has now been completely put into action with a few exceptions.
The new rules further ratchet up tensions in the increasingly fraught trade relationship between the two largest economies. The impact of these broadly high tariffs is more apparent daily. Tariffs can be extremely damaging to companies engaged in the global marketplace, often resulting in crippling damages. This economic pressure can lead to a standstill in transactional activity among traders. Praefcke noted, “High tariffs can lead to a standstill in trade or high losses for the companies involved.”
The consequences of this tariff extend past the immediate monetary damages. Beyond these direct impacts, they can have wider economic effects, affecting inflation and jobs. Praefcke stressed that the continued escalation will not be good for any of the parties. Now just as an example one could say that when two quarrel, a third rejoices. When one looks at the geopolitical and economic realities, the picture is far more complex. She stressed this nuance when talking about the current economic environment.
With EUR/USD under pressure, currency and capital markets participants are keeping a watchful eye to see how the tariff war unfolds. The current exchange rate, however, prices in a very skeptical market sentiment at this time, with uncertainty hanging over what’s likely in terms of resolution. The euro is trading just above 1.1350. International market participants are remaining on guard for any announcements or shifts in trade policy that could impact currency valuations.
Yet, the ongoing tariff war has further complicated this economic landscape. Now both countries are incurring the costs of that choice. It was clear that policymakers had a goal of protecting burgeoning domestic industries. In fact, these measures are doing much wider, more lasting damage to the global economy. The entire episode begs the question of how long any protectionist strategy like this will be allowed to stand.