Concerns are rising about the economic impact of President Donald Trump’s tariffs, which have sparked fears of a potential trade war. The OECD has forecasted that these tariff hikes will drag down growth in Canada, Mexico, and the United States while driving up inflation. Monday’s U.S. retail sales are now in focus as analysts assess the domestic economic landscape.
Additionally, the Euro remains near a five-month high after Germany agreed on a new fiscal deal, signaling economic stability in the Eurozone. In contrast, the Chinese yuan has firmed as Beijing takes steps to bolster consumption within the country. These measures include various stimulus efforts aimed at invigorating the economy.
The U.S. Dollar Index has decreased by over 5.5% in recent weeks. This decline is a sharp reversal from its strong performance late last year.
Tariffs and inflation concerns rise
Jonas Goltermann of Capital Economics noted, “The euro is about 6% up against the dollar, and last week’s movement in the euro was one of the most substantial in decades.”
Sharyn O’Halloran, a political economist at Trinity College Dublin, highlighted a significant change in economic fortunes. “Last year, the U.S. was doing well while Europe was sluggish. Now there’s newfound optimism in Europe, particularly with Germany’s new government boosting economic prospects.”
The U.S. is grappling with tariffs, inflation, fluctuating interest rates, taxes, and federal spending.
This has contributed to a sharp decline in the stock market. Joseph Gagnon from the Peterson Institute for International Economics added, “The current uncertainty, exacerbated by destructive tariffs, is causing businesses to hold off on significant investment plans. This not only heightens the risk of a recession but also scares the markets, which in turn could force the Federal Reserve to cut rates, further weakening the economy and the dollar.”
The dollar could come under pressure as U.S. equities are seen opening lower amid looming U.S. tariffs, ING’s Chris Turner said in a note.
President Donald Trump announced on Sunday that he would impose broad reciprocal tariffs and additional sector-specific tariffs starting April 2. “Unless we get some surprisingly strong U.S. retail sales figures today, a heavy-looking U.S. stock market looks likely to keep U.S. rates and the dollar on the soft side,” Turner added.