According to reports, European trade chief Maroš Šefčovič's was told of the tariffs by U.S. Commerce Secretary Howard Lutnick and Trade Representative Jamieson Greer. Photographer: Claudio Centonze. Copyright: European Union.
The Euro will face up to double-digit tariffs imposed by the U.S. next week.
The European Union anticipates that U.S. President Donald Trump will announce a flat, double-digit tariff on all EU goods on April 2, which could take effect at midnight on April 3.
According to a recent Politico article, the exact tariff rate remains under discussion but may be as high as 20 or 25%, reflecting the trade barriers the EU imposes on U.S. exports.
"Growth in the euro area could even be weaker if Trump follows through on his tariff announcements on EU imports in the near future. In short, we expect the EUR-USD exchange rate to fall quite sharply in the coming weeks," says Michael Pfister, FX Analyst at Commerzbank.
These new tariffs would be additive to existing ones on specific industries like steel and aluminium.
Additional tariffs on sectors such as automobiles, lumber, semiconductors, and pharmaceuticals are also anticipated.
It is unclear whether these would add to the global vehicle tariffs confirmed by the White House on March 26.
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European diplomats were informed that little could be done to prevent these tariffs, which signify the beginning of extensive trade negotiations.
The extent of the damage to the Euro is hard to quantify as there is significant uncertainty at this stage.
For this reason, there was little initial reaction in FX markets to the news that significant tariffs were incoming.
Questions that traders are asking include:
- Will the USD come under further pressure on renewed tariff deadlines?
"The strong bullish USD consensus has proven wrong in Q1. The USD could still strengthen short-term on high tariffs, but we remain bullish EURUSD for the year," says Athanasios Vamvakidis, FX Strategist at Bank of America in a note released March 27. - Will the traditional USD relationship with risk reassert, resulting in gains? This is a scenario envisaged by some FX analysts. "We maintain our forecasts for a USD rebound in Q2," says Daniel Tobon, a currency analyst at Citi. "Tariff risks look underpriced and we expect USD undervaluation to correct on a hawkish April 2 announcement."
- Will the UK be hit with tariffs because it charges VAT on goods? If so, the GBP could fall
As can be seen, there are notable implications for EUR/GBP and EUR/USD; quite simply, we need to see the details.
What we do know for sure is that volatility around the event will be elevated.