EUR/USD (Euro –US Dollar)

European manufacturers probably got a fillip from trade tensions, new data indicates. Eurozone manufacturing activity rose to a more than two-year high this month, according to an early reading from an S&P Global purchasing managers index.

Italy’s economy is set to grow more slowly in 2025-26 given US tariffs and delays in recovery-plan investments. Still, reforms and continuing EU-fund deployment should support medium-term growth after 2026.

Three scenarios for the sovereign credit outlook have emerged from the uncertainty over US trade policy – “tariff-light”, trade war, or a wider economic and financial crisis including introduction of capital controls.

The European Central Bank cut interest rates by a quarter point to offset the blow from tariffs, drawing attention from President Trump, who urged the Federal Reserve to follow suit. The euro weakened further against the dollar after the announcement.

After quite an active week of British data, the pound has generally held its strength or gained in various pairs.

(Bloomberg) -- The euro’s fastest rally in a decade and a half is gaining traction, with traders betting on a move to $1.20 and strategists scrambling to update their forecasts.Most Read from BloombergThe Secret Formula for Faster TrainsNYC Tourist Helicopter Crashes in Hudson River, Killing SixEven Oslo Has an Air Quality ProblemInside the Quiet, Extravagant Expansion of the Frick CollectionLisbon Mayor Wants Companies to Help Fix City’s Housing ShortageEurope’s common currency hit its stronges

The dollar is under pressure as President Trump's tariff strategy erodes global investors' confidence in American assets. China's decision to raise tariffs on U.S. goods to 125% on Friday sparked a new wave of selling. "The question of a potential dollar confidence crisis has now been definitively answered—we are experiencing one in full force," wrote ING's Francesco Pesole.

The partial suspension of U.S. tariffs “remains fragile,” and the European Union must continue to prepare counter-measures to defend itself, French President Emmanuel Macron said Friday. While the pause opens a door for talks, Macron said in a post on X, it also continues “uncertainty for businesses on both sides of the Atlantic” and leaves intact the 25% tariffs on steel and cars, and 10% tariffs on other goods.

The European Union will suspend its first wave of retaliatory duties against the U.S. for 90 days to focus on negotiations, after the Trump administration paused some global tariffs, a top EU official said.

The balance of risks for the global credit outlook remains negative. The United States government’s wide-ranging new import tariffs have exacerbated global economic and financial vulnerabilities.

European Commission President Ursula von der Leyen said she welcomes President Trump’s decision to pause some tariffs, calling it an important step toward stabilizing the global economy. The move came after European Union member states approved a plan on Wednesday to retaliate against U.S. steel and aluminum tariffs with duties on about 21 billion euros worth of American products, equivalent to about $23 billion. “Clear, predictable conditions are essential for trade and supply chains to function,” von der Leyen said early Thursday.

The European Union is moving ahead with imposing tariffs on a wide range of American products—including chewing gum, motorcycles and peanut butter—in retaliation for U.S. steel and aluminum duties. The tariffs target about 21 billion euros, or roughly $23 billion, of U.

The European Union’s executive arm is scrambling to assemble a package that will respond to President Trump’s 20% across-the-board tariffs and automotive duties. The European Commission could present EU member states with a plan as soon as next week, a spokesman said. States will vote Wednesday on a first phase of retaliation, in response to earlier U.S. metals tariffs, that involves duties on U.S. goods including boats, peanut butter and motorcycles.

A top European Union official said the bloc offered “zero-for-zero” tariffs for industrial goods during trade discussions with U.S. officials. “We stand ready to negotiate with the U.S.,” European Commission President Ursula von der Leyen said. Von der Leyen added the EU prefers a negotiated solution but is also prepared to respond to U.S. tariffs with countermeasures.

The European Union is prepared to retaliate against the 20% tariff that its faces from the U.S. if a compromised settlement can’t be reached, Miguel Berger, Germany’s ambassador to the U.K., said in an interview with Sky News on Sunday. Berger described the planned tariffs as “the biggest assault we have seen since the end of the second world war on global trade” but said that negotiation is preferable to the riskier strategy of initiating a trade war. “If we would take counter measures we would hurt our automotive industry twice,” Berger said.

France’s finance minister said the European Union shouldn’t respond to President Trump's reciprocal tariffs with similar countermeasures as it would hurt Europe’s economy and consumers. "We are working on a package of responses that can go beyond tariffs to bring the U.S. to the negotiating table and reach a balanced agreement," Éric Lombard said in a TV interview on Friday. "If we do like the U.S., if we apply tariffs to all American imports, we will also have a negative effect in Europe," he added.

President Trump’s tariff announcement was “inflation day,” said Germany's economics minister, Robert Habeck, predicting the measures would cause economic damage to both the U.S. and its trading partners. Habeck, whose party won’t participate in the upcoming coalition led by conservative politician Friedrich Merz, called for negotiations between the U.S. and the European Commission, which sets trade policy for the European Union.

The dollar fell sharply on Thursday, as investors bet President Trump's tariffs will blow back on the U.S. economy. The WSJ Dollar Index fell about 1.5% to its lowest level since mid-October. The Canadian dollar hit a nearly 4-month high.

European Commission President Ursula von der Leyen vowed to respond to President Trump’s latest tariffs, and called them “a major blow to the world economy” that would have dire consequences. The president of the European Union's executive arm said the bloc is ready to respond, with a measure to address the steel tariffs currently being finalized, and a second response also in the works.

European Central Bank President Christine Lagarde warned the Trump administration's tariffs will have a negative economic impact "the world over." "It will not be good for the global economy, and it will not be good for those who inflict the rates, or those who retaliate," she said in an interview with Ireland's Newstalk on Wednesday. Lagarde has warned previously about potential negative effects of tariffs on growth and inflation.