EUR/USD breaks below 1.0400 due to renewed US-EU trade tensions

• EUR/USD faces selling pressure amid heightened risk aversion following renewed US-EU trade tensions.
• US President Trump hinted at imposing "reciprocal" tariffs on the European Union (EU) as early as April.
• The US GDP Annualized grew by 2.3% in Q4 2024, matching market expectations.

EUR/USD continues its decline for the third consecutive day, trading near 1.0390 during the Asian session on Friday. The pair weakens as the risk-sensitive Euro faces selling pressure amid heightened risk aversion following renewed US-EU trade tensions. US President Donald Trump hinted at imposing "reciprocal" tariffs on the European Union (EU) as early as April.

During a press conference on Wednesday, Trump announced that a 25% tariff on "cars and other things" from the Eurozone would be implemented "very soon." In response, a European Commission (EC) spokesperson stated, "The EU will react firmly and immediately against unjustified barriers to free and fair trade."

The prospect of a US-EU tariff war poses a significant threat to the already fragile Eurozone economy, which continues to struggle with weak demand. This uncertainty could further weigh on the Euro, adding to the downward pressure on the EUR/USD pair.

Meanwhile, the US Dollar Index (DXY), which measures the USD against a basket of six major currencies, strengthened following the release of US Gross Domestic Product (GDP) data on Thursday. At the time of writing, the DXY hovers near 107.50.

The US GDP Annualized expanded by 2.3% in the fourth quarter of 2024, aligning with both the initial estimate and market expectations. Additionally, new orders for durable goods surged by 3.1% in January, surpassing forecasts of 2% and rebounding from a 2.2% decline in December.