US Stock Rally Pauses While Euro at 1-Year Low on Tariff Worries

The euro-dollar currency pair (EUR/USD) dropped to a new 52-week low of 1.0597 on Tuesday, 12 November, marking its lowest since November 2023, a near 1-year low. At the same time, leading US stocks slipped back from record highs in a pause from the post-US election rally.

Concerns over higher tariffs on foreign goods entering the US, combined with a generally strong US dollar has weighed on the euro, and to a lesser extent some stocks.

EUR/USD Tests Yearly Lows

The euro has now fallen five of the last six weeks versus the US dollar and at the time of writing, looks set for another weekly decline. The major forex pair has dropped 600 pips over that time, coming down from a high of over 1.12 to now under the 1.06. threshold.

President-elect Donald Trump has warned the eurozone will "pay a big price" for failing to boost American imports, with cars singled out as a primary target, and he has threatened China with sweeping 60% tariffs. Since his election last week, the euro has seen the market price in possible tariffs. 

Meanwhile, political turbulence adds to the euro’s woes: Germany, the bloc’s largest economy, faces elections on 23 February, just 11 weeks after Chancellor Olaf Scholz’s coalition collapsed.

From a purely USD-perspective, The US president-elect’s planned measures, such as tariffs and tax cuts, are seen as likely to drive up inflation and bond yields in the country, limiting the Federal Reserve’s capacity to ease policy and bolstering the dollar.

The above weekly candlestick chart shows EUR/USD breaking below a rising trendline. This comes after a failed breakout above 1.12 resistance in September this year. Put together, the price action signals a potential trend reversal from broadly bullish conditions to a new sideways market or bear market.

Wall Street Takes a Breather

US stocks pulled back on Tuesday 12 November as the major indices paused their post-election rally. The Dow Jones Industrial Average slipped 382.15 points, while the S&P 500 fell 0.29% to finish at 5,983.99 and under the 6,000 milestone seen this week. Both the S&P 500 and tech-focused Nasdaq snapped five-day winning streaks.

Several "Trump trade" favourites were among Tuesday's top decliners - giving some indication as to what was driving the broader weakness. Small-cap stocks, expected to benefit from Donald Trump's return to the White House, saw broad declines, with the Russell 2000 falling around 1.8%. Tesla, up 31% since Election Day, dropped over 6%, while Trump Media & Technology Group lost nearly 9%, now down 10% in total since Trump’s victory. (Source: Reuters)

Conclusion: Are Tariffs an Issue for Markets?

Market participants noted the euro’s sensitivity to potential higher US import tariffs on Friday, after reports surfaced that Trump was considering appointing Robert Lighthizer, a noted trade hawk, to head his trade policy. However, so far the reports have not been confirmed.

While tariffs will remain a focus and a possible headwind to the euro currency, forex traders will also need to consider other factors, such as US CPI and retail sales data to be released this week.