FX Market Shrugs Off Auto Tariffs: What Comes Next?.

• USD Reaction Muted: Despite new 25% tariffs, the FX market showed little movement, possibly due to tariff fatigue or expectations of lenient reciprocal tariffs.
• Broader Economic Focus: Investors are now more concerned about tariffs’ long-term impact on confidence, consumption, and investment rather than immediate currency fluctuations.
• EUR Slightly Weaker: Trade war fears have weighed on the euro, though the market is also eyeing a potential economic upturn in Germany ahead of the ECB’s April 17 meeting.
• GBP Holds Up Post-Statement: Sterling remained relatively stable, with GBP/USD losses driven more by US-related news than domestic fiscal concerns.
• Market Watching Key Data: US GDP revisions, trade deficit figures, and jobless claims data could drive near-term FX movements, with the dollar stuck in a narrow range for now.

USD: Muted Response to 25% Auto Tariffs
Despite the announcement of a 25% tariff on US auto imports, the FX market has reacted with surprising restraint. Key affected nations—Mexico, Canada, Germany, Japan, and South Korea—saw little movement in their currencies overnight. This lack of reaction suggests that tariff concerns may already be priced in, or that markets are experiencing “tariff fatigue.” Additionally, Trump’s hints at softer reciprocal tariffs next week and concerns over the fragility of US equities may be dampening market moves.

The new tariffs could affect nearly $500 billion worth of auto and auto parts, but there is still uncertainty about the exclusion of US-sourced content within global supply chains. Japan and South Korea could be the most vulnerable, given their limited use of US-made components in auto exports.

Rather than reacting sharply to the headline, the market appears to be shifting its focus to the broader economic implications—business sentiment, consumer confidence, and eventual hard data on consumption and investment. These factors will likely shape the narrative in Q2.

For now, the US dollar remains range-bound, though any equity market weakness dragging down US yields could introduce downside risks. In such a scenario, the Japanese yen may find renewed strength, despite its exposure to the auto sector.

On today’s US economic calendar, key events include revisions to Q4 GDP, February’s trade deficit figures, and weekly jobless claims. A narrowing trade deficit could provide mild USD support, while an unexpected spike in jobless claims could weigh on the dollar. The DXY index remains tightly contained between 104.00 and 104.50. Meanwhile, in North America, Mexico is expected to cut rates by 50 basis points to 9.00% today.

EUR: Softer as Trade Wars Take Center Stage
The shift in market focus from European fiscal stimulus to global trade tensions has left the euro slightly weaker. Markets will be watching for potential European retaliation and Washington’s response. A full-blown trade war would be negative for the euro, given its cyclical nature. However, the market will also assess the broader confidence impact of these tariffs.

Recent German IFO data suggests a potential economic upturn, setting the stage for an interesting European Central Bank (ECB) meeting on April 17. Markets are currently pricing in 18 basis points of rate cuts, though ING believes the possibility of a pause is underappreciated.

EUR/USD will likely track developments in German auto stocks today, though the possibility of lenient reciprocal tariffs could help keep support at 1.0730 intact. The eurozone economic calendar is light, with ECB board member Isabel Schnabel’s speech at 19:40 CET being the most notable event.

GBP: Sterling Navigates the Spring Statement
Sterling weathered the Spring Statement relatively well, with GBP/USD losses more attributable to lower February CPI data and the US auto tariff news than domestic factors. Chancellor Rachel Reeves received a boost from the Office for Budget Responsibility, which rated the government’s planning reforms favorably, suggesting stronger growth in the coming years. Additionally, the government managed to keep the gilt issuance below £300 billion, supporting bond markets.

However, this is more a case of sterling dodging a bullet than a bullish signal. If tax hikes are needed in the autumn, as analysts suggest, the current pricing of the Bank of England’s easing cycle may be too conservative.

On a day dominated by tariff news, EUR/GBP tends to underperform due to the UK’s relatively smaller auto sector compared to Germany’s. As a result, EUR/GBP could drift lower toward 0.8320.