Will Trump’s Tariff Deadline Drive USD/EUR Uncertainty in H2 2025?

President Trump’s return to the White House has certainly paved the way for an eventful first half of 2025. Now, as the long-awaited August 1 deadline for reciprocal tariff deals between the US and its trading partners approaches, the dollar is once again heading into uncharted territory.

Much of the market uncertainty that’s been prompted by the president’s bold stance on tariffs has played out in real-time in the USD/EUR spot rate, which has been steadily losing strength since Trump’s inauguration in January.

Uncertainty has been a key theme for the dollar in 2025, and the unpredictability of the president’s stance on trade is about to reach new levels as his deadline for nations to agree to a trade deal with the United States is due to expire in the coming days.

While it’s likely that a number of deals will be confirmed prior to the August 1 deadline, President Trump has suggested that top trading partners like Canada, Mexico, and the European Union could soon face tariffs as high as 50%.

Trump has suggested that reciprocal tariffs on US trading partners are likely to range from 15% to 50%, with higher rates reserved for nations that are deemed to have made the negotiations process more challenging.

Should sweeping levies be put into effect, the cost of importing goods across countless industries could lead to price hikes for a number of everyday products and the possibility of confounding inflation rates returning in the United States.

But what does it mean for the strength of the dollar when faced with the euro and other trading pairs?

The Uneven Impact of Trade Uncertainty

Positive news emerging from the United States surrounding a trade deal with Japan and high expectations of a deal soon to be made with the European Union saw USD/EUR break out of a two-week low amid a sharp decline in the days prior.

But will the imposition of high tariffs on trading partners strengthen or weaken the US dollar? The answer appears to depend on which impacts on higher import costs take hold the most.

Strategists at Goldman Sachs suggested that trade uncertainty would carry a heavier burden on foreign countries than the US, but have since acknowledged that soft data in the United States has weighed in at odds with resilience in European sentiment.

As well as tariff policy uncertainty, federal spending cuts and concerns over a weakening labor market have also contributed to a shaky economic outlook for the US that’s entered the USD/EUR mix.

There have also been suggestions that a weaker US dollar could see more challenges among BRICS currencies to attempt to accelerate de-dollarization.

Despite this, the dollar still dominates the forex landscape, and while China’s renminbi is reportedly used in 50% of all intra-BRICS trade, it still accounted for just 2% of global transactions in May 2025, according to Swift data.

According to the Centre for Economic Policy Research (CEPR), Europe may be forced to deal with a ‘dollar revaluation scenario’ in which USD experiences a prolonged period of weakness as opposed to the initial expectation of appreciation in response to tariffs.

This could occur because of the frequency with which global investors have increased their bond holdings, which has contributed to a strong dollar in recent years. If this process were to reverse as the appeal of US Treasuries weakens, CEPR estimates that the dollar may face fresh doubts over its safe-haven status.

What’s Next for USD/EUR?

It’s unlikely that the European Union will face exceptionally high tariffs as a result of its negotiations with the United States, and a softer trade deal will likely help the case for USD/EUR appreciation.

But adopting a more long-term outlook, many challenges could see currency appreciation fail to materialize for the dollar.

The prospect of uneven tariff deals means that import activities can shift between countries that are facing lower tariffs, or nearshoring businesses look to take advantage of neighbors close to the US to make the most of softer trade levies.

The coffee trade, for instance, is expected to lean more towards Colombia, Brazil, or Indonesia based on the outcome of different tariff rates, and this price-conscious selection process is expected to ring true for many trading partners.

There’s also the danger of foreign retaliation for the dollar to contend with, which could eat into the economic advantages of higher tariff rates on US imports.

The inflationary impact of tariffs may have the final say on the long-term outlook for USD/EUR. Should the August 1 deadline on negotiations lead to increased consumer costs, the higher cost of goods and weaker competition could lead to a rate of inflation that weakens the dollar as a whole, regardless of the outcome of US and EU trade negotiations.

Preparing for Uncertainty

President Donald Trump has long identified tariffs as a leading revenue stream for the United States, and after August, we’ll gain a more holistic view of what the outlook for trade means for the nation’s economy.

For now, the emphasis for forex traders remains focused on the rolling news surrounding US trade deals and their impact on trading pairs. For USD/EUR, a deal between the two partners appears close, but it’s far from the end of trading volatility as that all-important August 1 deadline approaches.