The US Dollar (USD) has surged across global markets following President Donald Trump's announcement of new tariffs on Canada, Mexico, and China. This decision, made late Friday, imposed a 25% duty on goods from Canada and Mexico and an additional 10% on Chinese imports. In 2024, these three nations accounted for 42% of total US imports, highlighting the substantial impact of the tariffs. The market reaction was swift, with the EUR/USD pair suffering significant losses, plummeting to the 1.0200 neighborhood during early Asian trading on Monday—a three-week low.
President Trump's trade policy aims to bolster the US economy and support American producers ahead of the November 2024 presidential election. His latest move has ignited fears of a global trade war, causing intense risk aversion among investors. The European Central Bank's (ECB) recent dovish stance has further undermined the Euro, contributing to the pressure on the EUR/USD pair. Last Thursday, the ECB lowered borrowing costs by 25 basis points and signaled the possibility of further cuts by year's end.
The Federal Reserve's hawkish pause has favored USD bulls, casting prospects for an extended depreciating trend for the EUR/USD pair. The pair's spot prices have neared their lowest point since January, appearing vulnerable to a prolonged downtrend. The anti-risk sentiment has provided support for the USD as a safe haven, exerting additional downward pressure on the EUR/USD exchange rate.
Global trade tensions have also affected other markets, with resurgent demand for the USD diminishing gold’s appeal as a safe-haven asset. The escalation of trade barriers against Canada, Mexico, and China—top exporters to the US—has exacerbated these concerns. According to the US Census Bureau, Mexico alone exported goods worth $466.6 billion in 2024, making it a significant player in US trade.
The announcement that President Trump would impose tariffs on goods from the European Union further heightened market anxieties. This move aligns with his strategy to leverage tariffs in supporting domestic economic interests amid election season. The ECB's dovish monetary policy approach contrasts sharply with the Fed's stance, adding to the Euro's struggles against a strengthening Dollar.
Despite these developments, recent declines in US Treasury bond yields could pose a challenge to the USD's momentum. This headwind may offer some respite to the beleaguered EUR/USD spot prices. Nonetheless, the heavy follow-through selling pressure on Monday indicates that market participants remain wary of further depreciation in the pair.