The euro slipped to a three-week low on Thursday, while the yen remained stable against the dollar, following U.S. President Donald Trump’s decision to impose a 25% tariff on imported cars and light trucks starting next week. The move has heightened concerns over a potential full-scale trade war, affecting investor sentiment and raising fears about economic growth and inflation in the U.S.
Despite concerns that the new tariffs could slow U.S. growth and contribute to inflationary pressures, markets had been cautiously optimistic due to the narrower scope of the duties than previously anticipated. The immediate impact on currency markets was relatively subdued. The euro edged down 0.07% to $1.0747, having earlier touched a three-week low of $1.0733. Meanwhile, the yen showed slight strength, trading at 150.445 per dollar.
The U.S. dollar index, which measures the greenback’s performance against a basket of six major currencies, held steady at 104.61, close to its highest level in three weeks recorded during the previous session.
In 2024, the U.S. imported $474 billion worth of automotive products, with passenger cars accounting for $220 billion of that total. The primary suppliers included key U.S. allies Mexico, Japan, South Korea, Canada, and Germany, all of which are expected to be significantly affected by the tariffs.
Market analysts suggest that these tariffs could lead to rising consumer prices and pose challenges for the U.S. economy. “It’s difficult not to view this as a factor contributing to higher costs and slowing growth, making the prospect of a smooth economic landing more complicated,” said Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities.
The Mexican peso weakened by more than 0.5%, trading at 20.2222 per U.S. dollar during Asian trading hours. Similarly, the Canadian dollar saw a slight decline, trading at 1.429 per U.S. dollar, after reaching its strongest level since February 24 in the previous session.
Trump has, for now, granted exemptions for auto parts that comply with the U.S.-Mexico-Canada Agreement (USMCA), which he negotiated during his first term. However, analysts believe the latest tariffs suggest that broader trade disruptions could continue. Kyle Rodda, a senior financial market analyst at Capital.Com, noted that the move signals the Trump administration’s intention to further reshape global trade policies. “This extends trade uncertainty and raises questions about how far-reaching Trump’s vision for global trade reform really is,” he said.
Looking ahead, investors are bracing for the announcement of reciprocal tariffs next week. Trump has hinted that these measures may not be directly equivalent to the tariffs he has previously proposed, leaving markets uncertain about their potential impact. Elsewhere in the currency market, the Australian dollar slipped slightly to $0.62925, while the New Zealand dollar remained largely unchanged at $0.57245.
