Trade Tensions Escalate: Euro Hits Three-Week Low Amid Auto Tariffs

The euro fell to a three-week low as President Trump's 25% tariffs on imported cars weighed on market sentiment. Investors fear the move could hamper U.S. growth and fuel inflation. Currency reactions were muted, but the Mexican and Canadian currencies weakened. Exemptions for compliant auto parts maintained trade complexities.

The euro slid to a three-week low on Thursday following President Donald Trump's decision to impose a 25% tariff on imported cars, signaling heightened trade tensions. This move has sparked concerns among investors that U.S. economic growth could be adversely affected, potentially stoking inflationary pressures.

Despite the gloomier outlook, the response from currency markets was relatively subdued. The euro dipped by 0.07% to $1.0747, while the yen experienced a marginal strengthening against the dollar. The dollar index hovered near a recently achieved three-week peak. The automotive imports sector, valued at $474 billion in 2024, faces significant disruptions, with major suppliers such as Mexico, Japan, South Korea, Canada, and Germany likely to be impacted.

The move, however, includes an exemption for parts compliant with the U.S.-Mexico-Canada Agreement, adding complexity to the trade scenario. Experts like Prashant Newnaha from TD Securities believe these tariffs signal a perplexing outlook for global trade. Finance analysts are now focused on the next week's reciprocal tariffs announcement, speculating on its broader impacts on international trade dynamics.

(With inputs from agencies.)