Euro Dips, Yen Steady as Trump’s Auto Tariffs Spark Global Trade Concerns

The euro slipped to a three-week low and the yen held steady on Thursday after U.S. President Donald Trump announced a 25% tariff on imported cars and light trucks, effective next week. The move reignited fears of a global trade war, dampening risk sentiment across financial markets.

Although recent optimism around potentially lighter tariffs had supported markets, the new auto duties renewed concerns about slower U.S. growth and rising inflation. The euro fell 0.07% to $1.0747 after hitting a low of $1.0733, while the yen edged slightly stronger to 150.445 per dollar. The U.S. dollar index hovered near a three-week high at 104.61.

In 2024, the U.S. imported $474 billion worth of automotive products, including $220 billion in passenger cars. Major exporters to the U.S. included close allies like Mexico, Japan, South Korea, Canada, and Germany. Trump’s tariff excludes auto parts compliant with the U.S.-Mexico-Canada Agreement.

Market reactions were mixed. The Mexican peso weakened over 0.5% to 20.2222 per dollar, while the Canadian dollar dipped to 1.429. The Australian dollar traded at $0.62925, and the New Zealand dollar was little changed at $0.57245.

Analysts warn the new tariffs could prolong trade uncertainty. Prashant Newnaha of TD Securities noted that higher prices and slower growth could make a soft economic landing more difficult. Kyle Rodda of Capital.com added that this signals the Trump administration's trade overhaul may extend beyond previously expected reciprocal tariffs.

Investors now await the announcement of retaliatory tariffs next week. Trump hinted these may differ from the direct reciprocal measures initially promised, fueling further market caution.