Ella 
EUR/USD has recovered above 1.0300 during Monday’s European session, after opening weaker around 1.0280. Major currencies opened weaker as investors flocked to safe-haven assets on renewed concerns about U.S. President Donald Trump’s tariffs. The U.S. Dollar Index (DXY), which tracks the greenback’s value against six major currencies, gave up some of its intraday gains but was still up 0.15% at around 108.25.
Over the weekend, President Trump threatened to impose 25% tariffs on steel and aluminum imports and to impose reciprocal tariffs on countries he believes engages in unfair trade practices. The biggest victim of Trump’s decision to impose a 25% tariff on metals is expected to be Canada, the largest exporter of aluminum to the United States. Major exporters to the United States, such as Mexico, Brazil, Vietnam and South Korea, will also be under pressure from high metal tariffs.
The impact of reciprocal tariffs is expected to be fatal for the eurozone, which imposes a 10% tariff on U.S. car imports and a 2.5% import tax on domestically supplied cars. This situation is negative for the euro (EUR), which is already vulnerable due to increasing risks of economic contraction and inflation below the ECB’s 2% target.
Last week, analysts at Macquarie warned that the US tariff bomb could find “fertile ground” in the EU, quickly escalating unresolved issues into trade tensions because “Europe is a target-rich region.”
The European Central Bank is set to continue cutting interest rates, and some policymakers have warned that the central bank may need to cut below the neutral rate because the eurozone economy is not strong enough to support 2% inflation.
ECB economists predict the so-called neutral rate is likely to be between 1.75% and 2.25%.
In Monday’s session, investors will be watching for a speech by ECB President Christine Lagarde to the European Parliament at 14:00 GMT. Lagarde will take part in the plenary debate on the ECB’s 2023 annual report.
