Global markets were on edge on Wednesday as U.S. President Donald Trump escalated his trade war, imposing new tariffs on Canada, Mexico, and China. The euro surged past $1.06, hitting a four-month high, while the Japanese yen gained ground on renewed safe-haven demand. Meanwhile, equity markets remained volatile, and oil prices slid to six-month lows as fears of a slowing global economy resurfaced.
Trump’s Tariff War Hits Global Markets
The U.S. dollar initially rose after Trump’s State of the Union address, where he doubled down on tariffs, pledging to restore America’s economic dominance through “reciprocal trade measures.” The administration’s latest round of 25% tariffs on Canada and Mexico, coupled with a 20% increase on Chinese imports, triggered swift retaliation from global trade partners.
Market Reactions to Tariff Announcements
- Euro Rallies to $1.0620: The EUR/USD pair surged to a level not seen since mid-November, benefiting from the dollar’s weakness amid escalating trade tensions.
- Sterling Climbs Toward $1.28: The GBP/USD pair remains supported by stronger-than-expected UK economic data, though concerns over potential UK tariffs linger.
- Japanese Yen Gains on Risk Aversion: The USD/JPY pair declined toward 150, reversing recent losses as safe-haven demand pushed the yen higher.
Euro Benefits from German Economic Stimulus
Adding to the euro’s strength, Germany’s ruling coalition proposed a €500 billion infrastructure investment fund aimed at boosting economic growth. This news, combined with Trump’s looming tariff threats on Europe, pushed EUR/USD higher, marking its third straight session of gains.
Japanese Yen Strengthens Amid Global Uncertainty
The yen saw renewed demand as investors sought safe-haven assets in response to heightened volatility:
- BOJ Deputy Governor Uchida reiterated that the central bank will continue raising rates if economic conditions justify further tightening.
- The BOJ’s exit from ultra-loose monetary policy remains gradual, but markets anticipate at least two more rate hikes by year-end.
- The yen strengthened to 150 per dollar, supported by rising Japanese bond yields and increasing expectations of BOJ tightening.
Stock and Commodity Markets React
Equity markets struggled to find direction as investors weighed trade risks against corporate earnings:
- Japan’s Nikkei 225 edged up 0.2%, but analysts warn that uncertainty over U.S. tariffs may limit gains.
- The S&P 500 dropped 1.2%, led by declines in trade-sensitive industries.
- Oil prices plunged to six-month lows, reflecting weaker global demand and economic slowdown fears.
- Bitcoin stabilized around $87,000, after extreme volatility in recent sessions.
Looking Ahead: Key Market Watchpoints
- Will Trump extend tariffs to Europe?
- Will the euro maintain its momentum, or will ECB policy concerns weigh on gains?
- How will the BOJ navigate its rate hikes amid global economic uncertainty?
With markets bracing for more tariff-related volatility, investors should stay vigilant as Trump’s aggressive trade stance reshapes global financial markets.
