07.05.202510:48 Forex Analysis & Reviews: U.S. Trade Deficit Hits Record High in March

The euro responded with an increase following the news that the U.S. trade deficit rose to a record level in March this year, as companies rushed to import goods, including pharmaceuticals. The blame lies with the Trump administration, which implemented large-scale trade tariffs.

Tariffs intended to protect American manufacturers and reduce the trade deficit had the opposite effect. Instead of stimulating domestic production, they led to rising prices on imported goods, forcing American companies to increase import volumes to meet demand. Pharmaceuticals were particularly affected, as many components and finished drugs are imported from abroad.

Economists note that the tariffs imposed by the Trump administration disrupted established supply chains and created uncertainty in the market. Companies, fearing further changes in trade policy, sought to stockpile imported goods, which in turn further widened the trade deficit. Additionally, retaliatory measures from other countries, such as tariffs on U.S. goods, negatively impacted American exports.

According to the data, the goods and services trade deficit rose by 14% compared to the previous month, reaching $140.5 billion. The average economist forecast had projected a deficit of $137.2 billion.

Consumer goods imports saw the largest increase on record, primarily due to a surge in pharmaceutical imports. Imports of capital equipment and motor vehicles also rose.

As noted earlier, the report illustrates what was likely a final effort by American companies to secure supplies before President Donald Trump announced tariff hikes on April 2. Although pharmaceutical imports were not yet affected, the president stated that a decision on pharmaceutical tariffs would be made soon.

The report also stated that the March surge in pharmaceutical imports caused the goods trade deficit with Ireland to rise to $29.3 billion—more than double the previous month's figure.

The sharp increase in the trade deficit in the first quarter became the main reason for the contraction of the U.S. economy for the first time since 2022. According to the latest data, gross domestic product declined by 0.3% on an annualized basis between January and March, with net exports shaving off nearly 5 percentage points from growth—the largest reduction on record. The total value of U.S. imports rose by 4.4% to a record high, while exports increased by just 0.2%.

However, surveys by the Institute for Supply Management gradually indicate a decline in imports from manufacturers and service providers, suggesting that the surge in imports ahead of tariff enforcement may be coming to an end.

The Trump administration has repeatedly emphasized its pursuit of fairness in bilateral trade, aiming to encourage foreign investment in the U.S., stimulate domestic production, and strengthen national industrial security. It also views tariffs as a tool to increase government revenue. Meanwhile, the trade deficit with Canada shrank, while the deficit with Mexico remained near the record level reached in February. The goods trade deficit with China decreased to $24.8 billion after seasonal adjustments. Adjusted for inflation, the overall U.S. goods trade deficit in March rose to a record $150.9 billion.

Regarding the current technical outlook for EUR/USD, buyers need to aim for a break above the 1.1379 level. Only then will it be possible to target a test of 1.1415. From there, a rise to 1.1453 could be attempted, although it will be difficult without support from large players. The ultimate target would be the high at 1.1487. In case of a decline, significant buyer activity is expected only around 1.1341. If absent, it would be advisable to wait for a new low at 1.1305 or to consider long positions from 1.1269.

As for GBP/USD, pound buyers need to push above the nearest resistance at 1.3365. Only then can they aim for 1.3399, a level that may prove challenging to break. The furthest target would be the 1.3437 zone. If the pair drops, bears will try to take control at 1.3335. If successful, a break of this range could deal a significant blow to the bulls and push GBP/USD down to the 1.3301 low, with a further prospect of reaching 1.3260.