Market sentiment regarding the euro is mixed. While it has seen a recent uptick against the dollar, fueled by dollar weakness and potential retaliatory EU tariffs, significant risks persist. These risks stem from potential transatlantic tensions arising from US trade policy and geopolitical ambitions, which could negatively impact European economies.
- The euro recovered from a three-month low, rising to around $1.162.
- President Trump threatened 10% tariffs on several European countries due to the Greenland situation.
- The EU is considering retaliatory tariffs of up to €93 billion on US goods.
- The UK and Germany face the largest export exposure to the US, with potential GDP reductions from tariffs.
- Risk aversion gripped financial markets following Trump’s decision to escalate tensions with Europe.
- The US Dollar trimmed gains and traded with modest losses against most major rivals.
- New 10% levies on eight European countries will come into place on February 1 and could increase to 25% on June 1.
The euro’s performance is caught between upward pressure from dollar weakness and potential EU countermeasures, and downward pressure from political tensions and the vulnerability of key European economies to US tariffs. The threat of tariffs is significant and could undermine economic growth, while the EU’s response introduces further uncertainty. Overall, the situation presents a complex picture for the asset’s near-term prospects.