Euro Relief After Proposed U.S. Tariffs Exclude Cars

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The Euro is one of the better performing major currencies on Tuesday, April 09 amidst relief that a raft of highly-anticipated  U.S. tariffs will not target cars imported from the European Union.

The U.S. has today stated it will instead be targeting EU-manufactured aircraft, motorcycles, cheese and wine totalling a value of US$11bn.

Following the call the Euro was seen trading higher against the U.S. Dollar with 1 EUR buying 1.1278 USD, the exchange rate's strongest level since March 27.

Against Sterling, the single-currency overturned earlier losses with 1 EUR now buying 0.8623 GBP, the exchange rate had been as low as 0.8595 earlier in the day. 1 GBP buys 1.1594 EUR.

On paper, the move by the U.S. administration would initially be seen as a potential negative for the single-currency which tends to derive fundamental strength from Europe's massive trade surplus in goods and services with the U.S. which stood at $92 billion in 2016.

The Euro is however higher as markets appear to be expressing a 'sigh of relief' that Europe's car industry were not targeted by the tariffs.

"European cars are not part of the list," says Elias Haddad, a foreign exchange analyst with CBA, "the amount targeted by the proposed tariffs account for just 3% of total EU merchandise exports to the US and less than 0.5% of total EU merchandise exports."

The tariffs would be implemented immediately after the World Trade Organisation (WTO) issues its finding on the value of US countermeasures this summer.

Airbus is the obvious target of the proposed sanctions and the move by the Trump administration looks to bring forward a long-running legal dispute over the provision of state aid to the aircraft manufacturer.

"This case has been in litigation for 14 years, and the time has come for action. The administration is preparing to respond immediately when the WTO issues its finding on the value of US countermeasures," said U.S. Trade Representative Robert Lighthizer, adding:

"Our ultimate goal is to reach an agreement with the EU to end all WTO-inconsistent subsidies to large civil aircraft. When the EU ends these harmful subsidies, the additional US duties imposed in response can be lifted."

Looking ahead, the main concern for markets would be the EU and U.S. announcing further tariffs which could ultimately balloon into a full-blown trade war.

"The U.S. starting a Trade War with the EU is one of the biggest 'Swords of Damocles' hanging over global markets," says Viraj Patel a foreign exchange strategist with Arkera.

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