EUR/USD Down Amid Concerns Over Potential EU-US Trade War
EUR/USD corrected near 1.0860 during European trading hours on Thursday (3/13). The major currency pair fell as the Euro (EUR) faced slight pressure on a fresh escalation in a potential tariff war between the European Union (EU) and the United States (US).
On Wednesday, US President Donald Trump said that he would respond to the EU’s proposed retaliatory tariffs on 26 billion euros worth of US goods. Trump’s comments came just before a meeting with Irish Prime Minister Micheál Martin, after which he said that “there is a huge deficit that we have with Ireland and with other countries” and added that he would impose reciprocal tariffs on them for taking advantage of the US.
During European trading hours on Wednesday, European Commission (EC) President Ursula von der Leyen unveiled ‘prompt and proportionate retaliatory measures’ on US imports in the EU in response to the steel tariffs. Trump announced combined tariffs of 25% on steel and aluminum imports, which came into effect on Thursday. Contrary to the EC’s retaliatory tariff announcement, a European Central Bank (ECB) policymaker and the Bank of Finland governor said during European trading hours on Thursday that the EU should aim for a “negotiated solution to the US tariffs,” urging the Trump administration to avoid unnecessary and “dangerous” tariffs.
A trade war between the continent and the US would have a major impact on the German economy, given that the country is the eurozone’s largest exporter to the US. During European trading hours on Thursday, European Central Bank (ECB) policymaker and Bundesbank President Joachim Nagel warned that US trade tariffs on the European Union (EU) could push “Germany into recession this year” in an interview with BBC News.
Meanwhile, trade was also cautious ahead of a meeting of German leaders to discuss debt restructuring to boost defense spending and stimulate economic growth. Germany’s debt reform is expected to be approved in the lower house of Parliament on Tuesday as Germany’s Green Party led by Franziska Brantner agreed to negotiate with the next Chancellor-designate, Friedrich Merz, and Social Democratic Party (SDP) co-leader Lars Klingbei.
The euro has outperformed lately as investors expect Germany's debt restructuring plan to be inflationary for the economy. Such a scenario would force traders to scale back dovish bets on the European Central Bank.
Source: FXStreet
