Initial tariff reaction stumps traders

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waterman
Written by Dan Waterman
March 5th 2025
The USD was meant to get stronger & the Euro was supposed to get weaker on confirmation of Trump tariffs, so what now?

Well frankly, no-one has a clue what happens next in financial markets, but we must stress this is only an initial reaction to things and not a trend (yet). This means, we don't expect the USD to continue to get weaker nor the Euro get stronger from here in the long run (although both may happen).

What we do know is financial markets have been realigned for the moment and the Dollar has been penalised from the tariffs. GBP v USD has moved to a 3-month high now and represents the same value as the average rate for 2024 (therefore a great time to exchange).

The Euro continues to outperform as investors gain more confidence in Europe, especially with the recent news out of Germany. GBP v EUR has suffered its biggest daily fall for 2-months after incoming Chancellor Merz said Germany would 'amend the constitution to exempt defense and security outlays from limits on fiscal spending to do whatever it takes to defend the country'.

A €500BN fund to invest in transportation, energy and housing shows real intent and would prove austerity in the country is now out of favour and strong growth lies ahead. This has seen the Euro gain in value across the board.

We expect the same USD & EUR theme to carry on throughout the week and until the dust settles and we have more clarity on the unfolding situations.