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Euro US Dollar (EUR/USD) Exchange Rate Trades Sideways as US-France Trade Tensions Flare

EUR/USD Exchange Rate Muted as US Threatens Tariffs on French Exports

The Euro US Dollar (EUR/USD) exchange rate is rangebound this morning as markets react to a sudden flaring of trade tensions between the US and France.

At the time of writing the EUR/USD exchange rate is currently trading at $1.1073, virtually unchanged from this morning’s opening rate.

Euro (EUR) Subdued as French Exports under Threat of US Tariffs

The Euro (EUR) is struggling to find support this morning after EUR investors awoke this morning to the news that Washington is proposing to impose tariffs on $2.4bn worth of French exports.

The Trump administration announced the proposals overnight on Monday in retaliation to France’s new digital services tax.

The tax will seek to impose a 3% levy on digital companies with global revenues in excess of €750m, and is designed to prevent firms from paying little tax in Europe by declaring their profits overseas.

However Washington claims the tax unfairly discriminates against large US tech firms such as Amazon, Facebook and Google.

Announcing the proposals US Trade Representative Robert Lighthizer said:

‘The USTR is focused on countering the growing protectionism of EU member states, which unfairly targets US companies, whether through digital services taxes or other efforts that target leading US digital services companies.’

Named in the proposals are a number of iconic French exports including champagne, cheese and handbags, which could all face tariffs of up to 100%.

Unsurprisingly the news has soured EUR sentiment this morning for fears that the tariffs could hurt the Eurozone’s already struggling economy.

US Dollar (USD) Side-Lined by Trade Jitters

At the same time, the US Dollar (USD) is stuck trading in a narrow range this morning amid subdued USD demand.

This comes as USD investors are spooked by Trump’s recent escalation in global trade tensions.

Not only has the US threatened tariffs against France, but it has also imposed new levies on steel and aluminium imports from Brazil and Argentina.

This has some USD investors worried about how rising trade protectionism could hurt the US economy and force the Federal Reserve into making additional rate cuts next year.

EUR/USD Exchange Rate Forecast: US Dollar to Rally on Robust Economic Data

Looking ahead, the Euro US Dollar (EUR/USD) exchange rate may start to come under pressure through the latter half of the week with publication of a number of key US economic releases.

First up on Wednesday will be the ISM non-manufacturing PMI, which may buoy the US Dollar is if reveals the US service sector continued to expand at a robust pace in November.

Potentially more influential however will be the US payroll report at the end of the week. Will another solid expansion in employment prompt the ‘Greenback’ to rally on Friday?

Meanwhile, the Euro could face some headwinds in the mid-week with the publication of the Eurozone’s own services PMI, which is expected to confirm growth in the sector narrowed last month.