The euro and the pound have risen against the dollar to their highest level since the week of the US election, as the greenback sank against other leading currencies amid mounting “Trumpcession” fears.
The European single currency rose by a cent to $1.093, breaching the $1.09 barrier for the first time since Donald Trump won the presidential race. Sterling hit $1.2956, its highest since 8 November, with both currencies strengthening after the US president escalated his trade war with Canada by lifting planned tariffs on metal imports.
Trump’s move drove stocks lower on Wall Street, where the S&P 500 index was down 1.2% in early afternoon trading, following a 2.7% slump on Monday.
The dollar lost 0.6% against a basket of leading currencies on Tuesday and, like the US stock market, has lost all its gains since Trump’s election victory. It hit its lowest level since the middle of October on Tuesday morning.
After a global sell-off in stock markets on Monday, there were further losses on Tuesday after Trump doubled the tariff being imposed on Canadian steel and aluminium tariffs on Wednesday to 50%.
The UK’s FTSE 100 share index lost 1.2%, or 104 points, to finish at 8,495 points, the lowest closing level since 16 January. Germany’s DAX and the French CAC index both shed about 1.3%.
“This latest escalation in trade tensions comes hot on the heels of a tumultuous Monday, which marked the worst day of 2025 for US markets. Investor fears were stoked by President Trump’s aggressive tariff policies targeting America’s largest trading partners, sending shockwaves through the financial landscape,” said Fawad Razaqzada, market analyst at City Index.
“The situation has left many observers questioning the broader implications of these trade policies on both the US economy and its international relationships,” Razaqzada added.
Before Trump’s announcement, there had been a mixed session in Asia-Pacific markets where Japan’s Nikkei fell by 0.6% and the South Korean market lost 1.3%, while Chinese exchanges closed moderately higher, up between 0.3% and 0.4%.
Trump vowed to buy a Tesla car in support of the billionaire Elon Musk after a slump in the electric carmaker’s share price, amid a backlash against the Tesla founder who has become one of the US president’s biggest allies. Tesla shares have more than halved in value since hitting a peak in December.
Writing on Truth Social, Trump accused “Radical Left Lunatics” of “trying to illegally and collusively boycott” the business after Tesla shares tumbled by 15% on Monday, their biggest daily decline since 2020.
The Swiss investment bank UBS has warned there is an increased risk that the US economy could suffer a downturn. It updated its house view scenario, and now forecasts a 30% chance of a “stagflationary or cyclical downturn” in the US, up from 25% at the end of last month.
Along with the Japanese yen, the euro is one of the beneficiaries as investors have dumped the US dollar.
Vasileios Gkionakis, a senior economist and strategist at the UK fund manager Aviva Investors, said there were several factors propelling the European single currency higher: the unwinding of the Trump/tariff trade; the seismic shift in Germany’s fiscal stance, alongside EU-wide announcements; and the hawkish interest rate cut by the European Central Bank. Weaker-than-expected US economic data and a potential ceasefire in Russia’s war against Ukraine are also playing a role.
“When push comes to shove, Europe gets its act together and cracks on with structural changes: in sum, this is a sentiment and confidence shift and outright currency-positive,” he said. “Assuming that any tariff impact will not be material, how high can the euro go?”
Some analysts predict the euro will reach $1.15 by the end of this year and $1.20 by the end of 2026. Gkionakis said he believes the $1.15 level could be hit “much sooner” than the end of the year.
