Euro Exchange Rates Knocked by Report Trump to Target European Vehicle Imports with Tariff Hike as Early as Next Week

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- Euro, European car stocks sent lower

- News adds to concerns for slowing German economy

- Could alter ECB thinking on monetary policy

The Euro took a knock in London afternoon trade Tuesday on a report U.S. President Donald will hit European car imports with raised tariffs as early as next week.

The news, broken by German publication WirtschaftsWoche, cites EU sources as saying the President will move on imposing a 25% tariff following his return from the G20 summit in Argentina.

The Section 232 investigation recommends a 25% duty on foreign-built vehicles excluding those made in Canada and Mexico, according to the report. Trump has previously threatened a 25% tariff on cars shipped from EU members.

The STOXX Europe 600 auto index was trading 2.5% lower. Volkswagen shares fell nearly 4%, Daimler, the parent company of Mercedes-Benz, dropped 2.4% and BMW was down 1.2%.

The Euro exchange rate complex fell in sympathy.

The Euro relinquished a strong advantage against Pound Sterling on the news easing from a high at 0.8887 to 0.8862. (Equating to a Pound-Euro recovery from 1.1253 to 1.1284).

The Euro-to-Dollar exchange rate traded as high as 1.1344 ahead of news of the tariffs and is quoted at 1.1291 in the wake of the reports.

Should these tariffs come to pass Trump would hit the Eurozone's most important export industry; German carmakers alone exported $20 billion worth of cars to the United States last year and account for a significant portion of the Eurozone's trade surplus.

According to Eurostat, Germany was responsible for well over half (55%) of the EU total exports in 2017. The United Kingdom, ranking second, registered a sixth (17%) of the EU total exports.

The tariffs would come at a bad time for the German economy which recorded negative growth in the third quarter of 2018, its first quarterly contraction since 2015. A fall in exports - largely associated with a cooling global economy and fears over global trade relations - were cited as being behind the decline.

Meanwhile recent business surveys suggest the economy is unlikely to pick up into year end.

We reported Monday the German economy faces a tepid finish to 2018 after a hat-trick of business surveys showed headwinds to growth mounting.

Confidence about the business outlook nosedived during October for the third consecutive month, according to the latest Ifo Business Climate index, which fell from 102.9 to 102 during the recent month.

The slowdown in the Eurozone's largest economy casts doubt on just how fast the European Central Bank will withdraw its stimulus injection, due to start in December with the ending of the Asset Purchase Programme.

Markets had bet the ECB would start raising interest rates in the Autumn of 2019; an assumption that had been largely supportive of the Euro.

However fears that this date might be delayed will likely see markets row back on expectations and in turn send the Euro lower.

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