The US dollar rose sharply on Monday after US President Donald Trump threatened to impose new tariffs on metal imports. This boosted demand for the dollar as a safe haven. In contrast, the euro weakened against the dollar.
At 04:00 ET (09:00 GMT), the dollar index rose 0.2% to 108.140. This move came on the back of concerns about an escalating trade war between the US and the rest of the world.
Trade War Fears Increase
Trump’s comments about imposing additional tariffs on steel and aluminum imports, in addition to his threats to impose reciprocal tariffs on major trading partners, have raised concerns in global markets. According to these statements, the new tariffs could reach 25%, which increases the possibility of an escalation in the trade conflict between the US and a number of major countries.
These trade tensions began last week after Trump imposed tariffs on Mexican and Canadian goods, then temporarily suspended them, while he maintained the tariffs imposed on China. China intends to implement tariffs on American goods later in the session, which has increased concerns among investors.
Inflation and Fed data
Away from trade tensions, investors are awaiting US inflation data, due to be released on Wednesday. Also, Federal Reserve Chairman Jerome Powell will testify before Congress on Tuesday and Wednesday, which will provide additional clues about the future of the Fed’s monetary policy.
As for the euro, the EUR/USD pair fell by 0.1% to 1.0316. This decline came after Trump’s statements regarding imposing tariffs against the European Union. While investors are awaiting developments in the trade war between the United States and Europe and its impact on currency markets.
The British pound is under pressure
ING analysts suggest the euro could continue to slide to 1.0225 if the negative effects of EU tariffs continue, as well as concerns over US inflation data.
As for the pound, it also saw a 0.1% decline to 1.2397, after the Bank of England cut interest rates by a quarter percentage point last week. Despite its decline, the pound is being hit by a double whammy of Trump’s trade policy and UK interest rates.
The focus is expected to return to the Bank of England’s monetary policy in the coming days, especially with the pessimistic outlook for the UK economy. Investors are closely watching the speech of Catherine Mann, a member of the Bank of England’s Monetary Policy Committee, to explain why she voted in favour of a rate cut at the bank’s meetings.
The Japanese Yen Falls
In Asian markets, the USD/JPY pair rose 0.6% to 152.37, indicating that the yen has retreated from its lowest level since early December. Although the yen saw notable gains last week on expectations of a Bank of Japan rate hike in the coming months, weaker-than-expected current account data helped drag down the yen’s momentum.
Chinese Yuan Continues to Feel Tariffs
On the other hand, the USD/CNY pair rose 0.3% to 7.3074, as talk of additional tariffs continued, in addition to weak economic data from China, such as weaker-than-expected inflation. This data points to a continued economic slowdown in China, which reinforces concerns about global growth.
Inflation in Focus for Central Banks
Despite the complex global economic situation, the primary focus for central banks remains inflation. However, economic growth should be the priority going forward. Central banks are seeking to adjust monetary policy in line with their inflation target, but concerns about economic growth may prompt a reassessment of these policies.
EUR/USD and the Parity Test
Analysts point out that uncertainty over the nature and timing of these tariffs will continue to support the dollar this week. They believe that trade threats from Trump could push the dollar higher, with the dollar index expected to reach new highs between 108 and 109 at the beginning of the week.
The economic policies adopted by US President Donald Trump are expected to have significant impacts on global economies. The trade war between the United States and other countries may also continue to directly affect global markets.
ING analysts point out that the euro could continue to decline to reach 1.0225 if the negative effects of the tariffs on the European Union continue, in addition to concerns about US inflation data.
The EUR/USD pair will likely test parity during the first half of 2025. The pair started the year at 1.1040 and then dropped to its lowest level of the year at 1.0332. As the second half of the year approaches, the pair began to improve, reaching 1.1213 in September, as expectations emerged that the euro could continue to rise.
However, these hopes may prove elusive. Expectations for monetary policy easing from central banks have receded as inflationary pressures persist. Employment and growth rates are also increasingly worrisome, compounding concerns about the stability of the global economy.
Based on current events, financial markets are watching the movements of the US dollar, the state of global trade tensions, and the impact of monetary policy on major economies. European, Asian, and US markets will feel the impact of these factors in the coming weeks, and these developments will drive significant volatility in financial markets.
