European markets have risen and the euro gained against the dollar to the highest level since the US election, as the greenback sank against other leading currencies amid mounting “Trumpcession” fears.
The euro rose sharply, breaking above $1.09 for the first time since early November, when Donald Trump’s election victory sent the dollar soaring. That “Trump trade” has unwound, as new US tariffs against Canada, Mexico and China, and the threat of more levies against European trading partners, have triggered fears of an American recession.
The dollar has lost 0.5% against a basket of leading currencies and, like the US stock market, has lost all the gains it enjoyed since Trump won the election. It hit its lowest level since the middle of October on Tuesday morning.
After a global sell-off in stock markets on Monday, Asian indices were calmer, and Wall Street futures, Treasury bond yields and cryptocurrencies recovered somewhat. 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%.
In Europe, Germany’s Dax rose by 0.7%, the French market added 0.5% and the Italian Borsa increased by 0.3%. In London, the FTSE 100 index dipped by 0.2%.
“While the panic button hasn’t been hit just yet, market sentiment remains fragile as Wall Street’s once-bullish bets are being tempered by escalating fears that aggressive tariffs and sweeping government spending cuts could derail US growth,” said Stephen Innes, a managing partner at SPI Asset Management, a Swiss wealth management company.
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 sees 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.
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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.
