The US Dollar Index (DXY) experienced a slight dip of 0.02%, settling at 107.98, amidst significant developments in US trade policy. Former President Donald Trump has signed an executive order to impose a 25% tariff on steel and aluminum imports, a move poised to impact international trade relations. Trump is also strategizing to introduce reciprocal tariffs on all countries that levy import duties on the United States. The White House has indicated that this plan could be unveiled before Trump's upcoming meeting with Indian Prime Minister Narendra Modi.
In a bid to bolster the US economy and support domestic producers, Trump aims to utilize tariffs as a key economic tool. This decision comes in light of Mexico's position as the leading exporter to the United States, with exports totaling $466.6 billion, according to the US Census Bureau. In 2024, Mexico, China, and Canada collectively accounted for 42% of total US imports, underscoring the significant role these nations play in the American market.
European policymakers are closely monitoring Trump's tariff initiatives, as trade tensions appear to be encroaching on Europe. The potential consequences of these measures have sparked varied reactions among economists, with two primary schools of thought emerging on the efficacy of tariffs in international trade.
While some economists argue that tariffs can protect domestic industries and reduce trade deficits, others caution that such measures may lead to retaliatory actions, ultimately harming global economic stability. The implications of Trump's tariff strategy extend beyond the US, as European officials contemplate their response to potential disruptions in trade relationships.
Amidst these developments, currency markets have shown mixed reactions. The EUR/USD currency pair extended its weekly recovery, briefly surpassing the 1.0400 level. However, this momentum lacked sustainability as the pair slipped back to the 1.0380 region. These fluctuations reflect the uncertainty surrounding global trade policies and their potential impact on currency values.
The announcement of reciprocal tariffs is anticipated to redefine trade dynamics, particularly with nations imposing import duties on the United States. Trump’s approach seeks to address perceived trade imbalances and encourage fairer trade practices on a global scale.