U.S Tariffs Threats Strengthen Dollar against EUR, Sterling

U.S Tariffs Threats Strengthen Dollar against EUR, Sterling

U.S tariffs threats boosted demand for dollar in the forex market on Monday with negative impacts on its trading pairs. According to some analysts, the tariffs threat against some countries have provided good reasons to be long USD in February.

The combination of wider interest rate differentials and broadening US tariffs are providing continued support to the dollar, ING analyst Chris Turner said in a note on Monday. EUR/GBP is offered again this morning as the market is dominated once more by the tariff story. The market expects the EU to have more to lose than the UK on tariffs.

Hence, the euro weakened to around $1.03, pressured by a stronger US dollar after President Donald Trump announced new global tariffs on steel and aluminum over the weekend.

This move further weighed on the currency amid expectations of a widening US-Europe interest rate gap, driven by strong US jobs data supporting the Fed’s decision to hold rates, in contrast to the ECB’s recent rate cut and signal of more easing in March.

Also, fears that US tariffs could trigger deflation have heightened expectations of deeper ECB cuts, with markets projecting the deposit rate to drop to 1.87% by December. Meanwhile, German Chancellor Olaf Scholz said the EU could respond “within an hour” if the US imposes tariffs on the bloc.

EU trade committee head Bernd Lange also noted that the bloc is willing to lower its 10% vehicle import tax closer to the US rate of 2.5% to avoid a trade war. The repricing of the Federal Reserve cycle after the strong United States jobs data has seen EUR:USD two-year swap rate differentials widen beyond 190bps, said ING.

The bank expects those differentials to stay near 200bps for most of the year and to keep EUR/USD under pressure. Friday’s release of the European Central Bank’s staff paper on the neutral interest rate had little impact on the pricing of the ECB cycle, stated ING.

The threat of U.S. tariffs coming to Europe this week has seen EUR/USD drop close to 1.03 again, wrote the bank in a note. A move back to 1.0225 is possible if there are ‘reciprocal’ tariffs from the European Union or some of the major European countries not in the bloc.

Wednesday’s U.S. consumer price index release is another negative event risk for EUR/USD, pointed out ING. EUR/GBP is offered again early Monday as financial markets are dominated once more by the tariff story, added the bank. Markets expect the EU to have more to lose than the United Kingom on tariffs.

Analyst could not rule out another drop in EUR/GBP to the 0.8250 area should tariffs hit the EU in the early part of this week. GBP/USD should be the focus for any sterling downside, however. ING favors GBP/USD heading down towards the lower end of a 1.2250-1.2500 trading range. #U.S Tariffs Threats Strengthen Dollar against EUR, Sterling Zenith Bank Hits 52-Week High in Fresh Rally Ahead of Earnings