Trump’s Tariff Playbook Fuels Euro Surge as Investors Flee Dollar Weakness

Donald Trump’s latest salvo in his global trade war—a 25% tariff hike on Canadian steel and aluminum imports, effective immediately—has sparked an unexpected rally in the euro, which surged 0.7% to $1.091, its strongest level since January.

The move, escalating total duties on the metals to 50%, underscores how the former president’s protectionist agenda is reshaping currency markets, with investors pivoting to European assets as the dollar stumbles.

“Trump’s tariffs aren’t just rattling trade—they’re rewriting the rules of global capital flows,” said Nigel Green, CEO of deVere Group, a $12 billion advisory firm. The dollar index, tracking the greenback against major peers, slid to a five-month low as markets priced in risks of U.S. economic nationalism, including supply chain chaos and inflationary spillovers. Meanwhile, Germany’s push to finalize a defense spending deal—part of a broader European military buildup fueled by Trump’s NATO skepticism—has injected fresh optimism into eurozone fiscal stability.

The euro’s ascent reflects a dual narrative: fears of U.S. isolationism and bets on Europe’s resilience. German and French equities, long seen as barometers of continental confidence, are drawing renewed interest, while euro-denominated sovereign bonds gain appeal as hedges against Washington-driven volatility. “Investors are reallocating from dollar assets to Europe not out of love for the eurozone, but out of distrust for Trump’s America,” Green noted, adding that the shift mirrors trends seen during prior trade wars.

Trump’s tariffs, targeting a key G7 ally, mark an escalation in his second-term strategy to reshore industries, yet the fallout is ricocheting beyond metals. Analysts warn that retaliatory measures from Ottawa could disrupt North American auto supply chains, further stoking inflation. Meanwhile, European policymakers are capitalizing on the dollar’s slide, with the ECB poised to slow its rate-cutting cycle as the euro’s strength tempers import price pressures.

For currency traders, the playbook is clear: short the dollar, long the euro. Hedge funds have ramped up bullish euro positions to a 14-month high, while institutional investors flock to German industrial stocks and Spanish renewable energy bonds. “The man who vowed to ‘put America first’ is inadvertently making Europe great again,” Green quipped.

As the dollar bleeds, the euro’s rally faces tests—not least from ECB caution over export competitiveness. But with Trump doubling down on tariffs and Europe doubling down on defense, the transatlantic divergence trade has legs. For markets, the message is stark: in a fragmenting world, the euro is emerging as the anti-dollar.