EUR, AUD Surge as Trump Delays EU Tariffs; USD Weakens Amid Fiscal Policy Uncertainty

On Monday, the euro (EUR) and risk-sensitive currencies such as the Australian dollar (AUD) saw notable gains after former U.S. President Donald Trump retracted his earlier threat to impose 50% tariffs on European Union imports starting June 1. The policy shift came as the EU requested additional time to negotiate what it called a “constructive agreement.”

At the same time, the U.S. dollar (USD) weakened against a broad basket of major currencies, reflecting rising concerns over U.S. fiscal stability and the future trajectory of its trade and economic policies.

Euro Rebounds, USD Slides as Policy Risks Mount

The initial announcement of 50% tariffs on EU goods had triggered market anxiety, especially in sectors tied to transatlantic trade such as automobiles, aerospace, and agriculture. Trump’s reversal, however, temporarily de-escalated trade tensions and fueled demand for pro-cyclical currencies—typically those of economies heavily reliant on global trade.

Currency traders interpreted the policy U-turn as a risk-on signal, prompting a selloff in USD-denominated assets. Meanwhile, the EUR/USD pair moved higher, bolstered by the prospect of continued EU–U.S. trade negotiations without immediate punitive measures.

Compounding the pressure on the greenback was a renewed focus on Trump’s expansive fiscal agenda, which includes a pending tax cut and infrastructure spending package. Market participants remain wary of the long-term effects such measures could have on the U.S. budget deficit and inflation outlook.

Quick Facts

• Event: Trump cancels threat of 50% tariffs on EU goods

• Market Reaction: EUR and AUD rallied, USD declined

• Key Driver: Delay requested by EU to finalize trade terms

• Secondary Impact: U.S. fiscal uncertainty due to spending proposals

• Risk Sentiment: Shift toward risk-on positioning in FX markets

Extended Analysis: Market Response and Strategic Implications

The foreign exchange market (FX) responded swiftly to the news. The euro (EUR) rose to its highest level in over a week, while the AUD/USD pair climbed on renewed optimism for global trade continuity. In contrast, the U.S. Dollar Index (DXY) fell by nearly 0.5%, reflecting declining investor appetite for USD-based assets.

Beyond currencies, equity and bond markets showed muted but directionally consistent reactions. European stock indices such as the DAX (GER40) and CAC 40 (FCHI) posted moderate gains, while yields on U.S. Treasuries edged higher, indicating expectations of increased federal borrowing.

Analysts noted that Trump's policy oscillation has introduced a new layer of uncertainty into global financial markets. While the tariff postponement is viewed positively in the short term, the lack of clarity surrounding future trade actions and fiscal decisions continues to dampen long-term confidence.

Key Points

1. Currency Impact: EUR and AUD appreciated on eased trade tension.

2. Policy Context: Trump’s fiscal and trade decisions driving volatility.

3. Market Rotation: Shift toward risk-sensitive assets, away from USD.

4. Bond Yields: U.S. Treasuries saw higher yields amid deficit concerns.

5. Investor Sentiment: Cautious optimism with persistent macro risks.

Temporary Relief for Markets, Long-Term Questions Remain

Trump’s decision to delay imposing punitive tariffs on the European Union has provided short-term relief to global markets, especially the currency and equity sectors most exposed to trade flows. The euro’s resurgence, alongside gains in the Australian dollar, underscores how sensitive markets remain to geopolitical and fiscal policy shifts.

However, the underlying uncertainty regarding the U.S. fiscal trajectory, compounded by the unpredictable nature of Trump-era trade policy, continues to weigh on investor sentiment. As the U.S. legislature debates expansive spending and tax reform, the outlook for the USD remains fragile, particularly in an environment where global risk appetite is regaining strength.