Euro Relief on Trump's Tariff Tirade is Misplaced

File image. Official White House Photo by Shealah Craighead.

The Euro has risen in value after President-elect Donald Trump ommitted to mention Europe in a 'tariff tirade' overnight. But relief might be misplaced.

Trump said on Monday he would place an import tariff of 25% on Canada and Mexico as a punishment for their perceived inability to stop illegal migrant flows into the U.S.

China was threatened with an additional 10% tariff - on top of the already-threatened 60% blanket tariff - for not stemming the production of fentanyl, a drug which Trump says is causing major issues for the U.S.

The MXN, CAD and CNH came under notable pressure following the developments that confirm Trump is going to lean heavily on trade sanctions to deliver his foreign policy aims.

The Euro to Dollar exchange rate (EUR/USD) went the other way and traded 0.20% higher on the day at 1.0513.

"That Europe was not mentioned in Trump's first tariff post could perhaps be welcome news on the Continent," says Chris Turner at ING.

However, Turner warns it will just be a matter of time before Trump turns his attention to the European auto sector or tariffs more broadly.

"In any case, the threat of further tariffs on China shows the direction of travel on world trade, which is bearish for the euro," he adds.

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George Vessey, Lead FX Strategist at Convera, says there are no immediate tailwinds in sight for the Euro which "looks primed for more losses."

"Parity appears increasingly likely over the next year," he adds.

According to Bloomberg data, the options-implied probability of Euro-Dollar parity trading within the next six months is now around 30%, up from 20% at the start of this month.

The Dollar started the new week on the softer side following the weekend nomination by Donald Trump of Scott Bessent as Treasury Secretary.

Market pundits said the appointment of an experienced Wall Street practitioner indicated the worst-case tariff scenarios might not be realised.

But this assumption has been blown sky high following Trump's tariff tirade.

"Fundamentals also point to a strengthening dollar. Bessent’s nomination might be a re-pricing of a less-hawkish trade stance, but Trump’s agenda remains unchanged. Deregulation, tax cuts, and tariffs all point to dollar bullishness on a 6-to-12 months horizon," says BCA Research.