The EUR/USD currency pair plummeted on Monday as the US Dollar strengthened following President Donald Trump’s confirmation of plans to impose tariffs on the European Union. The pair nosedived by over 1%, falling to near 1.0240, compounded by Trump’s decisive actions over the weekend, where he imposed 25% tariffs on imports from Canada and Mexico and 10% on Chinese goods. Trump accused the EU of taking advantage of the US by not purchasing enough American cars and farm products.
The imposition of tariffs on the Eurozone exacerbates existing economic challenges for the region, which is already at risk of a slowdown. Data released for the fourth quarter of 2024 showed that the Eurozone economy was stagnant, with Germany, the bloc’s largest economy, contracting by 0.2% year-over-year. These economic worries could pressure the European Central Bank to continue its policy of reducing interest rates, having already cut its Deposit Facility rate by 25 basis points to 2.75% last Thursday.
The Harmonized Index of Consumer Prices report for January showed a deflationary trend, with the core HICP deflating by 1% after a 0.5% increase in December.
Trump’s tariffs impact eur/usd
Overall, year-on-year data showed a steady rise in both headline and core HICP, exceeding expectations slightly.
The EUR/USD pair has continued to show signs of weakness, falling below key support levels, including the 20- and 50-day Exponential Moving Averages, signaling a bearish trend. The 14-day Relative Strength Index slipped below 40, indicating strong bearish momentum. The US Dollar Index, which tracks the USD’s performance against six major currencies, surged above 109.50.
Financial markets are now focused on upcoming US economic data releases, including the ISM Manufacturing and Services PMI, ADP Employment Change, and Nonfarm Payrolls for January, which will provide further insights into the labor market’s health. Meanwhile, the Federal Reserve has maintained current interest rates, indicating a wait-and-see approach until there are clear signs of progress in inflation or a weakening labor market. Investors remain on edge as the repercussions of the newly ignited trade war begin to unfold, with market analysts closely watching how tariffs and economic data will shape the trajectory of the EUR/USD pair in the coming weeks.
