The euro (EUR) has shown substantial fluctuations against the dollar in response to recent tariffs and trade war policies introduced by the US. The re-election of President Donald Trump in 2024 introduced aggressive trade policies and tariffs, which increased political uncertainty and impacted global financial markets and the EUR/USD exchange rate. Let’s analyze how these political changes in the US are impacting the euro and rely on recent data provided by reliable sources.
US political shifts and their immediate impact
Political shifts such as tariffs have a greater impact on currency rates, which is critical not only for consumers and investors, but also for currency day traders who are an important part of currency markets. Understanding and analyzing these tariffs and major political shifts from the world’s number one economy can seriously impact currency day trading strategies and tactics, which often rely on a combination of fundamental and technical analysis methods.
The re-election of President Trump brought protectionist measures with it, including the 10% baseline tariffs on all economies and a 20% duty on EU (European Union) imports from April 1, 2025. As President Trump constantly pauses and launches tariffs, significant market volatility follows, wiping trillions from the US stock markets. As a result, the U.S. dollar experienced a sharp decline, which does not seem to stop anytime soon. The dollar has dropped more than 1% against a basket of currencies, reaching its lowest levels in three years, with the Euro included. The EUR/USD has almost reached the 1.15 price level, which is significant. This is nearly a 10% drop since the beginning of the year, showing just how impactful major political decisions such as tariffs can be.
The Euro’s strength amid the US market crash
In contrast to USD’s gradual fall, the euro has shown resilience and has appreciated by over 5%, reaching a three-year high against the US dollar. This surge was not by accident, it was caused by the investors pulling from US assets and redirecting them to Europe, which was further accelerated by Germany’s new spending plan. The growing skepticism about US financial stability, caused by its constant stock market crashes, can also be blamed for this situation. As Trump introduced tariffs against almost every other country, the stock market was the first to react, with trillions of dollars evaporating as investors started panic selloffs. As a result, major stocks sometimes lost 10 %+ in several hours. As the EU countries started to implement countermeasures to Trump’s tariffs, their approach was very calculated and not aggressive, causing investors to gain confidence in the EU stocks and other assets, further strengthening the euro as a result.
Europe’s fiscal expansion
As European investors increasingly pull from US stock markets and bond markets, this capital flows to the EU and finances Europe’s fiscal expansion. As Germany announced a nearly 1 trillion euro stimulus and the EU has launched an 800 billion euro defense program, the effect on both EU stocks and currency was felt immediately. The capital returned from the US helps in financing these initiatives without driving up borrowing costs, and bond yields across the eurozone have dropped.
ECB’s response to a strengthening Euro
The European Central Bank (ECB) monitors the euro’s appreciation closely, which could, in theory, suppress inflation below the 2% target. ECB is expected to cut the interest rate by 0.25% to 2.25% to maintain price and financial stability. However, this is purely an expert speculation and we might see a different picture.
Historical context and insights
Important US political events typically impact exchange rates profoundly. The exchange rate volatility tends to increase one month before US elections and during periods of divided government. The study just shows how impactful the US presidential elections are on the global currency rates, and 2024 was no different. If we also consider what effects the 2008 crisis had on the global financial markets and economy, we can safely assume that the current tariff policies implemented by Trump’s administration will also have a profound effect on the Euro. This effect should be mostly positive as tariffs harm the US economy in the medium term, and its currency is going to lose value against other currencies, including the euro. If Trump’s administration softens its policies and tariffs, we might see a stronger dollar, which will make the euro lose its value against the USD, but this scenario is fairly unlikely.
