EUR/USD breaks below 1.0300 following implementation of US tariffs on China
- EUR/USD loses ground as China is hit with a 10% across-the-board tariff on Tuesday.
- Trump said on Monday afternoon that talks with China would take place probably over the next 24 hours.
- The Euro remains under pressure due to ongoing dovish sentiment surrounding the European Central Bank’s policy outlook.
EUR/USD extends its losing streak after surrendering daily gains, trading around 1.0280 during the Asian session on Tuesday. The pair loses ground as the US Dollar appreciates due to a 10% tariff implementation on China. However, Trump said on Monday afternoon that talks with China would take place “probably over the next 24 hours.” He also said, “If we can’t make a deal with China, then the tariffs will be very, very substantial.”
The EUR/USD pair also loses ground as United States (US) tariffs specifically targeting the European Union (EU) remain on the table. US President Donald Trump stated that he would suspend steep tariffs on Mexico and Canada after their leaders agreed to deploy 10,000 soldiers to the US border to combat drug trafficking. The tariffs on Mexico and Canada have been postponed for at least 30 days.
The Harmonized Index of Consumer Prices in the Euro Area increased to 2.5% year-over-year in January, up from 2.4% in December, slightly surpassing market expectations of 2.4%, according to a preliminary estimate. This marked the highest inflation rate since July 2024, driven mainly by a significant rise in energy costs.
In contrast, inflation for non-energy industrial goods remained unchanged at 0.5%. The core inflation rate, which excludes the often volatile food and energy sectors, held steady at 2.7% for the fifth consecutive month, slightly above the expected 2.6%, though still the lowest it has been since early 2022.
The EUR/USD pair may also face challenges as the Euro remains under pressure due to ongoing dovish sentiment surrounding the European Central Bank’s (ECB) policy outlook. Last week, the ECB cut its Deposit Facility Rate by 25 basis points (bps) to 2.75%, while the Main Refinancing Operations Rate dropped to 2.9%, as anticipated.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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