EUR/USD corrected near 1.0860 during European trading hours on Thursday (3/13). The major currency pair fell as the Euro (EUR) faced slight pressure on a new escalation in a potential tariff war between the European Union (EU) and the United States (US).
On Wednesday, US President Donald Trump said that he would respond to the EU's proposed retaliatory tariffs on 26 billion Euros worth of US goods. Trump's comments came just before a meeting with Irish Prime Minister Micheál Martin, after which he said that "there is a big deficit that we have with Ireland and with other countries" and added that he would impose reciprocal tariffs on them for taking advantage of the US.
During European trading hours on Wednesday, European Commission (EC) President Ursula von der Leyen unveiled 'prompt and proportionate retaliatory measures' on US imports in the EU in response to the steel tariffs. Trump announced 25% tariffs on steel and aluminum imports, which came into effect on Thursday.
The trade war between the continent and the US will have a major impact on the German economy, given that the country is the Eurozone's largest exporter to the US. In European trading hours on Thursday, European Central Bank (ECB) policymaker and Bundesbank President Joachim Nagel warned that US trade tariffs against the European Union (EU) could push "Germany into recession this year" in an interview with BBC News.
Meanwhile, trading was also cautious ahead of a meeting of German leaders to discuss debt restructuring to boost defense spending and stimulate economic growth. Germany's debt reform is expected to be approved in the lower house of Parliament on Tuesday as the German Green Party led by Franziska Brantner agreed to negotiate with the next Chancellor candidate Friedrich Merz and Social Democratic Party (SDP) co-leader Lars Klingbei.
The euro has outperformed lately as investors expect Germany's debt restructuring plan to be inflationary for the economy. Such a scenario would force traders to scale back dovish bets on the European Central Bank (ECB). (Newsmaker23)
Source: FXstreet
