empty
28.03.2025 12:44 AM
EUR/USD. Trump Sends the Dollar into Knockdown Again

The EUR/USD pair is experiencing a correction following Donald Trump's latest statements, as he has once again reignited the tariff war. Interestingly, the greenback initially reacted positively to the president's remarks — the U.S. dollar index returned to the 104.00 area and reached a three-week high. However, after the market digested the news flow, the developments were ultimately interpreted against the American currency. The dollar index reversed south again, and EUR/USD buyers tested the 1.08 area (Thursday's high was 1.0822). Market participants concluded that the new round of the tariff war could also hit the U.S. economy, increasing the risk of recession.

Trump announced that the United States will introduce 25% tariffs on all cars assembled abroad. According to him, the new tariffs will be implemented from April 2 and are expected to generate $100 billion in annual revenue while stimulating the growth of the domestic auto industry.

This image is no longer relevant

According to economists surveyed by Bloomberg, the countries most affected by the "automotive" tariffs will be Germany (last year, the U.S. accounted for 13% of all German auto exports), Japan, South Korea, Mexico, and Canada.

These tariffs could significantly harm the American auto industry since nearly 60% of auto parts used in U.S.-assembled vehicles come from abroad. Giants like General Motors, Stellantis, and Ford will be particularly affected. For instance, GM and Ford assemble many of their models in Canada and Mexico, which are considered "foreign" vehicles under U.S. law. Consequently, when these cars cross the border, they will be subject to an additional 25% tax. Furthermore, Trump announced that the tariffs would apply to parts manufactured outside the United States starting in May. Naturally, the increased cost of parts will ultimately impact the final price of vehicles. Mexico alone supplies almost 40% of all auto parts imported to the U.S. Analysts have already calculated that 25% tariffs on components from just Canada and Mexico would raise the cost of American cars by $5,000–$10,000 depending on the model.

It's also evident that U.S. automakers will not be able to relocate production to the States in the short term — such changes take time — not to mention that American labor is significantly more expensive than Mexican labor. It's also clear that manufacturers will pass additional costs onto the end consumer and/or compensate for losses by cutting production, which would mean job losses.

Moreover, one shouldn't forget about potential retaliatory measures. Japanese Prime Minister Shigeru Ishiba has already stated that Japan will consider "all possible responses to U.S. tariffs." European Commission President Ursula von der Leyen echoed this sentiment, noting that Brussels would examine the impact of the new tariffs and explore possible countermeasures.

It's worth recalling that following the March Federal Reserve meeting, Chair Jerome Powell spoke of rising uncertainty "mainly due to developments surrounding foreign trade tariffs." He stressed that the Fed would not rush to cut interest rates in this context, as "greater clarity is needed."

As we can see, the U.S. president has only complicated an already tricky puzzle — against the backdrop of looming "reciprocal" tariffs, Trump also announced new duties on auto imports.

It is reasonable to assume that, in the context of growing trade tensions, the Fed will take a wait-and-see approach not only in May but also in June. Theoretically, such "patience" from the Fed should support the greenback by weakening dovish expectations. But in reality, we are witnessing the opposite: the dollar index is actively declining, as fears of a potential U.S. recession have again taken hold in the market.

This image is no longer relevant

Incidentally, the Atlanta Fed's GDPNow tracker confirmed a gloomy outlook, estimating annual growth in the current quarter at -1.8% (earlier this month, the forecast was -2.8%). This bleak preview puts additional pressure on the dollar. The market ignored the final Q4 GDP data from the U.S. despite the headline figure being revised upward from 2.3% to 2.4%. Despite this positive release, the dollar continues to lose ground as the uncertain outlook for 2025 matters more to traders than last year's achievements.

Thus, Donald Trump has once again sent the dollar into a knockdown by announcing a tightening tariff policy. Markets are again talking about the negative consequences of another trade confrontation, and the greenback is under pressure, allowing EUR/USD buyers to stage a corrective rebound. However, it is too early to speak of a sustainable rally in the pair as the market continues to digest the U.S. president's statements and assess the consequences of his decisions. A wait-and-see approach in EUR/USD is advisable in such an environment. The market is agitated, and the current pullback appears more emotional than trend-driven — it is too early to speak of a reversal. Meanwhile, the dollar has yet to find solid ground. Therefore, staying out of the market remains the safest option for now.

Irina Manzenko,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

EUR/USD. Analysis and Forecast

On Thursday, the EUR/USD pair is falling below the psychological level of 1.1300. The election of Friedrich Merz as Chancellor of Germany reduces uncertainty regarding the economic strength

Irina Yanina 11:12 2025-05-08 UTC+2

The Market Will Save Itself

The Fed is no longer the center of the financial universe, and the S&P 500's 13% rally from April lows has once again made U.S. equities expensive. That sums

Marek Petkovich 10:13 2025-05-08 UTC+2

Fed's Rate Hold and US-China Talks Support the Dollar (High Likelihood of EUR/USD and Gold Declines)

The Federal Reserve remained firm, with its leadership reaffirming a steadfast wait-and-see approach. Interestingly, the Fed did not respond to notable changes in the economy, citing heightened uncertainty

Pati Gani 09:53 2025-05-08 UTC+2

The Bank of England Is Ready to Cut Rates

The Bank of England is expected to cut interest rates by a quarter of a percentage point today and signal that another reduction is likely in June. This could potentially

Jakub Novak 09:21 2025-05-08 UTC+2

Why Gold Dropped Sharply After the Fed Meeting

Gold experienced a slight uptick following the Federal Reserve's meeting, where interest rates were kept unchanged and Fed Chair Jerome Powell stated that the central bank is in no rush

Jakub Novak 09:17 2025-05-08 UTC+2

FOMC Meeting Results

The euro and British pound resumed their decline against the US dollar following the release of the Federal Reserve meeting results; however, the drop was not significant, and the future

Jakub Novak 09:15 2025-05-08 UTC+2

What to Pay Attention to on May 8? A Breakdown of Fundamental Events for Beginners

Very few macroeconomic events are scheduled for Thursday, and none are significant. Germany will release its industrial production report for March, and the U.S. will publish weekly jobless claims. These

Paolo Greco 06:05 2025-05-08 UTC+2

GBP/USD Overview – May 8: The Tesla Crisis as the Apex of Trump's Policy

The GBP/USD currency pair traded relatively calmly for most of Wednesday despite the evening FOMC meeting. As per our usual approach, we won't be analyzing the results of that meeting

Paolo Greco 03:39 2025-05-08 UTC+2

EUR/USD Overview – May 8: A First Step Toward De-escalation?

The EUR/USD currency pair continued to trade sideways for most of Wednesday. There was a minor upward movement, but as a reminder, the pair has now been range-bound for three

Paolo Greco 03:39 2025-05-08 UTC+2

EUR/USD: Awaiting the Geneva Meeting

The EUR/USD pair continues to trade within a narrow price range ahead of announcing the Federal Reserve's May meeting results. Although the outcome is largely predetermined (the central bank

Irina Manzenko 00:47 2025-05-08 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.