Euro Slips Further as U.S. Dollar Strengthens Amid Trade Disputes

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The U.S. dollar strengthened on Friday, with the euro retreating further from a five-month high, as markets grappled with rising global trade tensions and fears of a sharp economic slowdown.

The volatility intensified as U.S. President Donald Trump threatened to impose a 200% tariff on European wine, cognac, and other alcohol imports. This came after the EU announced plans to levy taxes on U.S. whiskey and other products next month, a response to Trump's 25% tariffs on steel and aluminum imports earlier in the week.

These escalating trade disputes have added to uncertainty, stoking concerns of an economic downturn. The S&P 500 fell into correction territory on Thursday as investors sought refuge in U.S. Treasuries and other safe-haven assets.

The euro dipped to $1.0847, moving further away from the five-month high it reached earlier in the week as the EU-U.S. trade tensions weighed on markets, coupled with difficulties in Germany passing a major spending proposal.

Hopes for a ceasefire between Ukraine and Russia also waned, with Russia suggesting the U.S. proposal would require significant adjustments.

The weaker euro helped push the dollar further from its mid-October low of 103.21, although concerns about the U.S. and global economic outlook remained. Tony Sycamore, a market analyst at IG, stated that it was unclear what news would reverse the current risk sentiment.

Since reaching a six-month high in January, the dollar has dropped more than 5%, losing ground against the euro, pound, and yen, as the narrative of U.S. exceptionalism weakened.

A potential U.S. government shutdown added to market unease, though Senate Democrat Chuck Schumer indicated his party would vote to advance a Republican funding bill, which could avert the shutdown.

The pound hovered around $1.2945 ahead of January's GDP data, after falling from Wednesday’s high of $1.2990, its strongest against the dollar since early November.

The yen eased off its gains, with the dollar rising 0.35% to 148.32 yen. Earlier in the week, the yen had strengthened to 146.545 per dollar on safe-haven demand and expectations that the Bank of Japan (BOJ) might raise interest rates later this year.

Markets were also focused on the first round of spring wage negotiations, which could encourage the BOJ to continue its policy normalization. Economists expect the BOJ to hold steady at its meeting next week as it monitors global risks.

The dollar index, which tracks the greenback against a basket of currencies, rose 0.1% to 103.95 after two days of gains.

The Canadian dollar traded at 1.4440 per U.S. dollar, impacted by the tariff dispute, while the Australian dollar steadied at $0.6284 after a dip on Thursday. The New Zealand dollar rose 0.1% to $0.5702.

 

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author