The euro strengthened against the dollar on Friday as markets reacted to renewed trade threats from former President Donald Trump and ongoing concerns about the U.S. national debt. Trump has proposed increasing customs taxes on goods from the European Union, escalating trade tensions.

Trump announced via his Truth Social platform that he is considering raising customs duties to 50% on June 1, a meaningful increase from the current 10%. He justified the move by citing difficulties in trade negotiations with Europe. “It is very difficult to deal with the EU, which was created in the first place to take advantage of the United States from a commercial point of view. (…) Our discussions are going nowhere. Under these conditions I recommend that I impose 50% customs duties on the EU, from June 1. There are no customs duties on products manufactured in the United States,” he wrote.

Currently,customs duties on European products average 12.5%, which includes the initial 2.5% before Trump’s return and the additional 10% imposed in early April as “reciprocal” duties. The White House had initially considered tariffs as high as 20% but paused at 10% to allow for further negotiations.

Adding to the market’s unease is the ongoing debate over the U.S. budget. Trump urged Republican lawmakers to support his “big and beautiful law” this past tuesday,but divisions within the party are slowing progress on the tax project.

This tax reform has raised concerns about the ballooning U.S. debt, which stands at $37 trillion. “President Trump’s tax bill has intensified concerns about long-term fiscal viability,in particular after Moody’s’s decision to lower the sovereign credit note on the United States on Friday,” said Konstantinos Chrysikos at Kudotrade,before this budgetary Mega-Locker was voted in the Chamber of Representatives.

The market is especially focused on how this legislation will impact the U.S. debt trajectory. Estimates from the Congressional Budget Office indicate that the project could add $3.8 trillion to the national debt over the next decade.

In economic data,weekly unemployment claims met expectations at 227,000 new units. PMI indicators for May exceeded forecasts, with services at 52.3 and industry at 52.2.

However, the German component of the PMI German services disappointed, coming in at 47.2, which is 2.4 points below target.

“The economy of the euro zone is struggling to regain a foothold. The composite PMI index, which has only suggested low recovery signs since January, highlights a return of contraction in the region’s private sector in May. Though,this drop in activity does not result from American customs duties. The entry into force of these new customs tariffs has rather favored a slight recovery of the recently” Rubia, chief economist in hamburg Commercial Bank.

“Manufacturing production has indeed increased for a third consecutive month while, for the first time as April 2022, the volume of new orders obtained by the manufacturers has not decreased. On the other hand, in the service sector, though less exposed to changes in American commercial policies than the industrial sector (with the exception of specific activities such as international logistics), activity has become the volume for the first time as November 2024. New affairs from abroad has decreased, it is indeed the weakness of domestic demand which seems mainly weighing on the performance of the sector. “

The IFO business climate index for the Eurozone’s largest economy remained under pressure at 87.5 but was largely in line with consensus.

At midday, the euro was trading at approximately $1.1340.

Key graphics elements

The pair of currencies currently succeeds in the highly vital graphic test of the mobile average at 50 days (in orange). A breath of breath is necessary before the conquest of new highests. That is to say the formation of several support on this trend curve.

Medium term

In view of the key graphic factors that we have mentioned, our opinion is neutral in the medium term on Euro dollar parity (Eurusd).

We will keep this neutral opinion as long as the EURO dollar parity prices (EURUSD) are positioned between the support at 1,1202 USD and the resistance to 1,1460 USD.

Daily data graphics

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“It is very difficult to deal with the EU, which was created in the first place to take advantage of the United States from a commercial point of view.”