The euro rebounded from a three-week low hit earlier on Thursday after U.S. President Donald Trump announced a 25% tariff on imported cars and light trucks starting next week. Despite concerns about a potential trade war weighing on market sentiment, currency reactions remained relatively muted, with most of the volatility centered on automaker stocks.
The euro rose 0.3% to $1.0786 after dipping to $1.0733 earlier in the session. The yen strengthened slightly to 150.17 per dollar.
Meanwhile, the Mexican peso weakened by 0.5% to 20.2054 per U.S. dollar in Asian trading, while the Canadian dollar remained flat at 1.4261 per U.S. dollar.
In 2024, the U.S. imported $474 billion worth of automotive products, including $220 billion in passenger cars. Key suppliers included Mexico, Japan, South Korea, Canada, and Germany—longstanding U.S. allies.
“This move prolongs trade uncertainty and raises concerns about how drastically Trump intends to reshape the global trade landscape,” said Kyle Rodda, senior financial market analyst at Capital.com.
The U.S. dollar index, which tracks the greenback against six major currencies, fell 0.33% to 104.29, after reaching a three-week high in the previous session.
Vasu Menon, managing director of investment strategy at OCBC, warned that the new tariffs could make cars more expensive for U.S. consumers already grappling with inflation, potentially heightening recession fears.
“If affected countries retaliate with their own tariffs, it could further hurt U.S. consumers and automakers, worsening inflation concerns and economic uncertainty,” he added.
Investors are now closely watching for retaliatory tariffs expected to be announced next week. Trump has suggested these measures may not be direct equivalents to those he previously threatened.
Market participants remain concerned that the new trade policies could slow U.S. economic growth and reignite inflation. However, optimism persists that the tariffs may be narrower in scope than initially feared.
St. Louis Federal Reserve President Alberto Musalem cautioned on Wednesday that inflation could remain higher than expected while economic growth slows, signaling no immediate urgency for the Fed to cut interest rates.
In the broader currency market, the Australian dollar edged up 0.21% to $0.6311, while the New Zealand dollar rose 0.23% to $0.5742.
The British pound strengthened 0.26% to $1.2919, recovering from a 0.45% decline in the previous session. Investors assessed the implications of Finance Minister Rachel Reeves’ spring budget update, in which she scaled back spending plans, offering some reassurance to markets.
Additionally, data released Wednesday showed UK inflation slowed to 2.8% in February, down from 3.0% in January—below analysts’ expectations of 2.9%. However, experts cautioned that rising energy costs and tax hikes could push inflation back toward 4% later this year.
