- EUR/USD posts a fresh year-to-date high near 1.0670 as the US Dollar weakens amid uncertainty over US growth prospects.
- US President Trump reiterates that reciprocal tariffs to take effect on April 2.
- The ECB is expected to reduce interest rates by 25 bps on Thursday.
EUR/USD extends the prior day’s strong upside move to near 1.0700 in European trading hours on Wednesday, the highest level seen this year. The major currency pair strengthens as investors dump the US Dollar (USD) amid growing concerns about the United States (US) economic outlook. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slides to an over three-month low of 105.15.
A slew of events has changed the perception of market participants towards United States (US) President Donald Trump’s tariff agenda. Investors are anticipating that Trump tariffs will slow down US economic growth rather than being pro-growth and inflationary for the economy, which they had projected earlier.
“Given the tight linkages in supply chains across the United States, Mexico, and Canada (USMCA) countries – most notably in the auto industry – tariffs left on for more than a matter of a week or two are likely to have a substantial impact on growth,” Citi said in a report.
The bank also expects a 0.1% decline in the Q1 real Gross Domestic Product (GDP) and expects the Federal Reserve (Fed) to resume its policy-easing cycle, which it paused in December, in the May meeting.
With tariffs now in effect, inflation cooling, equity markets declining, and consumer spending slowing, Citi expects the likelihood of a Fed rate cut in May has swelled.
Meanwhile, 25% tariffs on Canada and Mexico and an additional 10% on China took effect on Tuesday. Moreover, President Trump confirmed that reciprocal tariffs will be imposed from April 2 while addressing Congress on Tuesday.
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