The U.S. dollar experienced a notable decline on Wednesday, with the dollar index falling by 0.26% as of 3:26 p.m. London time. The decline happened as trade tensions were worsening. This came just after the announcement by U.S. President Donald Trump that he was considering imposing massive tariffs on cars imported from the European Union (EU) and Canada. The crazy trade landscape has sent waves through world markets, as seen from the gyrations of key European stock exchanges.
Fallen oil prices weighed on the UK’s FTSE 100 index, which is forecast to open 121 points lower at 8,513. This rapid decline follows increased public anxiety over the effects of Trump’s tariff threats. Germany’s DAX index fell by 0.7% on Thursday, while France’s CAC 40 dropped by 0.5%. On the other hand on Thursday, the Stoxx 600 index — a benchmark for stocks performance in Europe — dropped 0.44%. Each of the big bourses ended down on the day’s trading session, with …
These market reactions come at the same time as the UK is facing some of the highest long-term borrowing costs in its history. The yield on the 10-year government bonds, known as gilts, rose by 6 basis points by 12:33 p.m. in London. This increase is suggestive of an increasing fear among investors about the economy’s health as tariffs continue to rise.
President Trump announced intentions to impose a 25% tariff on all foreign-made cars and light trucks if the EU collaborates with Canada to undermine U.S. economic interests. He stated, “If the European Union works with Canada in order to do economic harm to the USA, large scale Tariffs, far larger than currently planned, will be placed on them both in order to protect the best friend that each of those two countries has ever had!”
The implications of these tariffs could be dire for both economies. In 2024, the EU reported a vehicles and machinery trade surplus with the U.S. worth approximately 102 billion euros ($109.8 billion). Analysts estimate that the average tariff rate will increase significantly. It has already tripled, rising to above 8% due to Trump’s earlier tariffs.
“We think the direction of travel is clear: average tariff rates are increasing, likely to levels not seen since before World War II,” said Michael McLean, an economic analyst. He noted that after Trump’s implemented tariffs, the U.S. weighted average tariff rate surged from 2.5% at the end of 2024 to over 8%.
Expectations regarding future tariffs remain cautious, with McLean suggesting that “we assume once Trump is finished, it could be as high as 15%.” This prediction is deeply troubling and points to the potential effect of these increases. They would seriously threaten any prospect for increased economic growth in the U.S. and its trading partners.
Investors are expecting to see signals of increasing or paring back capital expenditure trends in the U.S. Mark Haefele highlighted that “higher capex intensity in the US, defined as capex spending divided by revenues, stands at 20% in 2025 compared to China’s 11.7%.” Beyond national security concerns, this indicates an important shift in the dynamics of investment that has implications for global competitiveness.
Already, European leaders have made clear their intention to hold strong against these incoming tariffs. Ursula von der Leyen emphasized, “As a major trading power and a strong community of 27 Member States, we will jointly protect our workers, businesses and consumers across our European Union.” Her declaration is both a sign and pledge to protect European economic self-interest, even as pressure mounts from dance partners across the pond.
Market analysts are still concerned about what all this means for the overall economy, as these trade actions continue to unfold. Sawdah Bhaimiya commented on the current market sentiment, saying, “At the moment things are quite negative, and with the tariff backdrop, we could be in a different place next week.”
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