EUR/USD Drops to Near 1-year Low on US Tariff Worries

The euro has slumped to near a one-year low against the US dollar as traders fretted about the chance of higher tariffs on European goods imported to the US. This dollar strength continues to weigh on gold and in part explains a drop in global stock markets whereby the FTSE 100 hits 3-month low. Meanwhile, traders await key US inflation data, with a heavy schedule of economic releases expected to drive markets this week.

Equities

The FTSE 100 fell by 1.2% on Tuesday, reaching its lowest point in over three months, as investor concerns grew around the potential impact of US President-elect Donald Trump’s policies.

The drop was notably driven by a sharp 5.2% fall in industrial metal miners due to a two-month low in copper prices, fuelled by worries about the impact of a potential China hawk appointment within the U.S. administration. Personal goods stocks led the sectoral declines, with Burberry losing 6% amid reports dismissing any takeover talks with Moncler. Vodafone tumbled 8.2% to the bottom of the FTSE 100, as the telecom giant reported significant challenges in its key German market. Meanwhile, Convatec surged 22% following a positive sales growth forecast for the year.

On Wall Street, all three major indices ended the day in the red. U.S. Treasuries edged higher, with rising yields adding pressure on equities, while the small-cap Russell 2000 index dropped 1.8% following a three-year high on Monday.

The Dow Jones Industrial Average slipped 382 points to 43,911, with Amgen leading losses, falling over 7% after data indicated bone density issues with its new obesity treatment, MariTide. The S&P 500 and Nasdaq closed down 0.29% and 0.09% respectively.

Healthcare stocks suffered in particular, with Amgen’s setback weighing on the sector. Tesla broke its five-day rally, dropping 6% as investors moved to take profits after recent gains of nearly 40% since the election. Biotechnology firm Novavax also declined 6% after reducing its annual revenue forecast due to lower-than-expected vaccine sales.

In contrast, Honeywell achieved a record high, closing up 3.8% following an announcement from activist investor Elliott Investment that it had acquired a $5 billion stake in the industrial conglomerate.

Forex & Commodities

The euro dropped to $1.0596—its lowest since November 2023—amid Trump’s trade rhetoric targeting the EU and political uncertainty in Germany ahead of its February elections. Sterling weakened against the dollar, sliding 0.99% to $1.2742 following a softening in UK wage growth data and an uptick in unemployment.

The US dollar rose to its highest level in six-and-a-half months against other major currencies, reaching 105.96 on Tuesday, supported by market optimism around inflationary tariffs under President-elect Donald Trump’s incoming administration.

In the cryptocurrency market, Bitcoin briefly touched $90,000 to hit a record peak before easing slightly, responding to speculation that Trump’s administration will favour crypto-friendly policies.

Gold prices dipped to $2,589.59, marking nearly a two-month low, as the stronger dollar made bullion more costly for holders of other currencies.

Oil prices hovered near a two-week low, despite a modest recovery, with Brent at $71.89 per barrel and WTI at $68.12. A recent OPEC report cut global demand forecasts for 2024 due to slower-than-expected growth in China, signalling challenges for the organisation’s efforts to stabilise prices amid weaker demand projections.