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Euro Falls on U.S. Tariffs and Rate Gap

Euro Falls on U.S. Tariffs and Rate Gap

The euro weakened to around $1.03, weighed down by a stronger U.S. dollar after President Donald Trump announced new global tariffs on steel and aluminum over the weekend. The move added pressure on the single currency, as investors anticipated a widening interest rate gap between the U.S. and Europe.

Stronger-than-expected U.S. jobs data reinforced expectations that the Federal Reserve will maintain its current policy stance, while the European Central Bank recently cut rates and signaled further easing in March. This divergence has fueled bearish sentiment toward the euro, with market projections pointing to a decline in the ECB’s deposit rate to 1.87% by year-end.

The possibility of deflation in the eurozone has also intensified expectations for deeper rate cuts, as policymakers look for ways to counterbalance economic weakness. At the same time, concerns over trade tensions have escalated, with German Chancellor Olaf Scholz warning that the European Union could retaliate “within an hour” if the U.S. imposes tariffs on European exports.

In an effort to avoid a full-blown trade war, EU trade committee head Bernd Lange suggested that the bloc is open to reducing its 10% vehicle import tax to a level closer to the U.S. rate of 2.5%. Market participants are now closely watching further developments, as heightened uncertainty continues to weigh on the euro’s outlook.

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