The euro took a hit yesterday, depreciating around 1.3% against USD for the worst intraday performance in two months. Meanwhile, USD had its best day since early May as the DXY Index climbed by more than 1.0%. These moves come as an extension of the trade deal announcements Trump made over the weekend.
The main headline was the “deal” between the US and the EU which established a 15% baseline tariff in addition to various carveouts and sectoral tariffs, as well as a commitment by the EU to buy $750 billion worth of US energy products and commit $600 billion of investment into the US by 2028. However, our energy strategist, Florence Schmit, has called into question the plausibility of this promise, citing that “the EU would need to import roughly 67% of its energy needs from the US,” and this is without even taking to account European competition with Asian and Middle Eastern buyers.
However, not all are thrilled with this trade deal. Some German industry leaders have expressed concerns. When headlines and tariff rates are constantly changing, so does sentiment. Prior to Trump’s inauguration, economists were talking about “worst case scenarios” that included horrific outcomes like a 5% universal tariff, and 15% on Chinese goods. After witnessing 145% tariffs on China and Liberation Day “reciprocal tariffs,” it’s easy to shrug off the current developments. But the actual tariff levels still matter. According to Bloomberg, Wolfgang Niedermark of the BDI industry federation has wailed that “the EU is accepting painful tariffs. Even a 15% tariff will have immense negative consequences for Germany’s export-oriented industry.”
