US dollar sinks against euro amid tariff uncertainty and recession fears

Concerns over the U.S. economy’s stability drove the dollar lower on Tuesday, with the sharpest decline seen against the euro, hitting its lowest level since mid-October at $1.0944, down 1% as of 6:16 p.m. GMT.

Currency traders are especially worried about the economic impact of the tariffs imposed or threatened by President Donald Trump in recent weeks against several countries including China and U.S. neighbors Canada and Mexico.

“In my experience, typically, such a sharp move happens because both sides of the blade are moving” in a scissor effect, Marc Chandler of Bannockburn Global Forex told Agence France-Presse (AFP), describing a “growth scare” in the United States.

Trump doubled down Tuesday on his trade aggression against Ottawa, announcing he was hiking tariffs on Canadian steel and aluminum to 50% from the previous 25%, a move that takes effect Wednesday.

Canadian authorities have vowed to retaliate against any further tariffs.

Economic concerns have swelled since the weekend when Trump told Fox News that the U.S. economy was facing “a period of transition” and declined to rule out a downturn.

Defense allocations and a brighter outlook drive demand for euro

Meanwhile European currencies soared, benefiting over the past week from improving growth prospects on the continent following announcements on defense investments, according to Lee Hardman, an analyst at MUFG.

“The time of illusions is now over,” said European Union chief Ursula von der Leyen on Tuesday as she called for a “surge” in European defence spending amid faltering U.S. support in the face of and aggressive Russia.

The rise in value of the single euro currency, as well as other EU currencies, continued in the wake of the European Commission’s plan to “rearm” Europe through the mobilization of some €800 billion ($843 billion) for the continent’s defense.