The U.S. dollar weakened sharply on Monday as former President Donald Trump signaled plans to impose 25% tariffs on all European Union imports, reigniting trade tensions. Markets reacted swiftly, with the DXY index dropping 1.2% to 102.35.
- Dollar index (DXY) fell to 102.35, down 1.2% on news of proposed 25% EU tariffs
- Trump announced 25% tariffs on all EU imports during a January 16 rally
- EU imports to the U.S. totaled $428 billion in 2024, with auto and machinery sectors most exposed
- Euro rose to $1.0940; U.S. 10-year yield dropped to 4.23%
- VIX spiked 13%, indicating growing market volatility
- European Commission signaled possible WTO action if tariffs are implemented
The greenback fell across the board following a series of statements from Donald Trump during a rally in Washington, D.C., on January 16. Trump announced he would levy a 25% tariff on all goods imported from the European Union if elected in 2028, citing unfair trade practices and the need to protect American industries. This marks a significant escalation from his previous campaign rhetoric and has triggered immediate market reassessments of global trade risk. The DXY index, which measures the dollar’s value against a basket of major currencies, declined to 102.35 by midday trading, its lowest level since November 2024. The euro surged 1.1% to $1.0940, while the U.S. 10-year Treasury yield dropped 8 basis points to 4.23%, reflecting diminished demand for dollar-denominated assets amid rising uncertainty. The proposed tariff would affect key EU exports including automobiles, machinery, and agricultural goods—sectors that accounted for $428 billion in U.S. imports in 2024. Industry analysts warn that such a measure could trigger retaliatory actions from Brussels, potentially disrupting supply chains and inflating consumer prices in both regions. The European Commission has already signaled it would consider legal action through the World Trade Organization if the tariffs are enacted. Financial markets are pricing in heightened risk, with the CBOE Volatility Index (VIX) rising 13% in early trading. Investors in multinational equities, particularly in automotive and industrial sectors, have begun adjusting portfolios. Major exporters like Volkswagen AG and Airbus SE saw shares decline 2.3% and 1.7%, respectively, as the potential trade friction weighs on future earnings outlooks.