Euro-Dollar Falls to April Lows on Trump Appointments

Above: File image of Mike Waltz. Source: New America.

The Euro is under fresh pressure against the Dollar as Trump looks all but set to enact an 'America first' trade policy that is particularly troublesome for the Eurozone's economic outlook.

The Euro to Dollar exchange rate (EUR/USD) slid through 1.0665 support on Tuesday to reach 1.0620 as markets reacted to Trump's first key appointments, which were always going to be taken as a sign as to where his priorities would lie.

By appointing Mike Waltz, Marco Rubio and Elise Stefanik, Trump looks like he is in no mood to soften his isolationist trade agenda.

Trump wants to introduce a blanket 10% import tariff in order to bolster the U.S. manufacturing base, and economists say the European Union is particularly vulnerable, given the U.S. is the EU's single largest export market.

Trump has reportedly asked Mike Waltz to serve as his national security adviser. Waltz is also on the Republican’s China taskforce and is considered hawkish, advocating for a more aggressive foreign policy when it comes to China.

Euro-Dollar fell in the wake of Trump's win, with his hand strengthened by the Republican's sweep of both houses of Congress, as the Republicans are set to secure a majority in the House of Representatives on Tuesday.

"In FX, investors appear to be accelerating the 'Trump trade', with the USD strengthening further across the board, as reflected in the US dollar index (DXY) rising back above 105.50," says Roberto Mialich, FX Strategist at UniCredit Bank.

The fresh impetus takes EUR/USD to its lowest level since April. 

"The euro fell to a near seven-month low of $1.0621 on Tuesday as the European Union readies its response to a possible hike in tariffs by the incoming Trump administration on goods such as cars and steel. Political uncertainty in Germany is adding to the euro’s woes following the collapse of the country’s coalition government and the likelihood of a snap election," says Raffi Boyadjian, Lead Market Analyst at XM.com.

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"The euro and the Chinese yuan are the currencies of the two countries that are potentially most impacted by the expected rise in US tariffs that President-elect Trump threatened to impose during his electoral campaign. EUR-USD has slipped further towards 1.06," says Roberto Mialich, FX Strategist at UniCredit Bank.

Following Trump's strong performance, there was a chance he would opt to strike a more nuanced tone, potentially opening the door to negotiations with China and the EU.

But, the signal sent by the initial appointments suggests this won't be the case and he will pursue a 10% global tariff as a baseline.

"European countries are potentially most vulnerable to Trump's tariffs and reshoring," says Julian Jessop, an independent economist and an IEA Economics Fellow.

Trump is reportedly set to announce Marco Rubio as Secretary of State. Rubio is a long-time 'hawk' on China and will be the first sitting Secretary of State who is under Chinese sanctions.

"Trump is set to pick two men with track records of harshly criticising China for key posts in his new administration, adding to investor concerns that relations between the two countries will deteriorate further in the coming years," says Lee Hardman, Senior Currency Analyst at MUFG Bank.

Rubio called on the Treasury Department in 2019 to launch a national security review of popular Chinese social media app TikTok’s acquisition of Musical.ly. This year he called on the Biden administration to block all sales to Huawei after it released a new laptop powered by an Intel AI processor chip.

Elise Stefanik is Trump's nomination as U.S. ambassador to the United Nations, and Hardman explains she has also been outspoken on China, citing national security and economic threats posed by the “Chinese Communist government” as one of her priorities when serving as congresswoman for New York.

The choice of Stefanik is said to signal a more combative U.S. posture toward the UN.

The prospect of a trade war with the U.S. will add fresh headwinds to the Eurozone's economy, just as it looked as though manufacturing activity was turning a corner.

The ZEW survey - a key measure of German and Eurozone investor sentiment - on Tuesday showed a sharp reduction in sentiment in November as the prospect of tariffs weighed.

"Investor sentiment fell notably in November in response to Trump’s election and the prospect of US tariffs, which will hit Europe’s already struggling manufacturing sector," says Andrzej Szczepaniak, an economist at Nomura.

Nomura estimates that U.S. tariffs will reduce Eurozone GDP growth by a minimum 0.3pp cumulative over 2025-26.

Not only will tariffs hit EU exports, but a slowdown in the Chinese economy would present a 'double whammy', as China is a significant destination for the EU's high-end precision exports.