The euro fell against the US dollar on Tuesday as markets digested news of a potential 30% tariff on European imports under President Donald Trump’s administration, a move that threatens to disrupt transatlantic trade flows.
The euro settled at $1.1603, down 0.55% on the day, hovering near a three-week low as investors assessed the impact of the new trade measures. Trump announced the tariffs would take effect on August 1 but later signaled openness to negotiations.
Higher tariffs could weigh heavily on Europe’s key exporters, particularly in the automotive and pharmaceutical sectors, Oxford Economics’ Matthew Swannell noted in a report. He added that Europe would struggle to offset lost US demand if tariffs drive up prices for European goods.
The US, the EU’s largest external market, is critical for European manufacturers, and the potential tariffs form part of Trump’s broader plan to reduce trade deficits while boosting domestic production.
In response, the European Union has said it will hold off on immediate countermeasures, extending a suspension on planned retaliatory tariffs until early August to allow room for negotiations. The EU aims to secure a preliminary trade agreement with Washington this week, targeting a 10% tariff framework beyond the August 1 deadline while discussions toward a permanent deal continue.
Reports on Tuesday indicated that the US proposed maintaining a 10% baseline tariff with exemptions for certain sectors like aircraft and spirits. However, Washington has so far resisted EU requests to extend exemptions to sensitive industries, including cars, steel, aluminum, and pharmaceuticals.
The EU has warned it is preparing retaliatory measures, including potential export controls and restrictions on US firms’ access to public contracts, if negotiations fail.
Meanwhile, on the monetary policy front, markets expect the European Central Bank to keep interest rates steady at its upcoming meeting, with investors still pricing in a possible 25-basis-point rate cut later this year.
Despite July’s pullback, the euro remains nearly 13% higher against the dollar year-to-date, buoyed by broad dollar weakness and improved sentiment around the eurozone’s economic outlook, particularly after Germany’s pivot toward increased fiscal spending.
