Liberation day has now come and gone and as the dust settles following President Donald Trump’s imposition of both blanket and reciprocal tariffs, the United States Dollar is taking it on the chin and has slid well over a percent against all major currencies to open the morning.
Overview
During Trump’s speech yesterday afternoon markets were wildly volatile, with most FX pairs whipsawing more than a hundred basis points in either direction. After the US close, though, the Dollar’s slide gained speed and the Bloomberg Dollar Spot Index has fallen nearly 2% during the Asian and European sessions this morning. Equity markets as well are set to lose trillions of dollars in value at the open this morning. DJIA futures are down 3% in pre-market trading, S&P futures down 3.75%, and Nasdaq futures are down a whopping 4.62%. Oil prices fell more than 6% in overnight trading, while gold prices easily cleared yet another record high.
All in all, though the baseline global tariff rate of 10% is not as harsh as markets feared, the country-specific reciprocal tariffs imposed on more than 60 nations are largely worse than expected. Effective tariff rates on Chinese goods imported to the US are now set to top 50% – 34% imposed yesterday combining with pre-existing duties. Many South Asian nations, especially ones that have strong trade ties with China, are facing extensive levies too – Vietnam and Cambodia, for example, are now subject to levies of more than 45%. All EU goods are now subject to 20% tariffs as well. Canada and Mexico, though, are not subject to any additional measures and all USMCA exemptions are set to continue.
Typically on major risk events like this the broader Dollar has an inverse correlation with equities, but that’s not the case today as markets are increasingly fearful that these actions could constitute as much as a 1.5% hit to US GDP. The average tariff rate on US imports, as of now, could rise into the 25-30% range with these new policies, which could easily hit GDP and re-accelerate inflation in dramatic fashion. As the health of the US economy is very much at stake at the current moment, the Dollar is moving in tandem with US equities today and losses are piling up across the board. It does remain to be seen, however, if some of these country-specific rates in particular are negotiated down before they are set to begin on April 9. These measures constitute the harshest US trade policies since the 1880s and are set to outdo the Smoot-Hawley tariff package of 1930 that ultimately worsened the Great Depression.
What to Watch This Week…
- US Non-Farm Payrolls, Friday 8:30AM
- Monex USA Online is always open
The complete Economic Calendar can be found here.
EUR ⇑
As the Dollar’s freefall continues this morning, the single currency is posting massive gains today and has risen more than 2.25% against the Buck since yesterday’s close. The EU was targeted with harsher tariffs than the global 10% blanket imposition with measures of 20% on all goods imported from the economic bloc. The response from European headers has been quite swift, with France and Germany in particular calling for a “more aggressive” response to these measures and European Commission President Ursula Von Der Leyen vowing to respond with countermeasures.
JPY ⇑
Japanese Yen and Swiss Franc, long the world’s favorites for haven currencies, are continuing to reap the benefits of massive global uncertainty and fear, both gaining more than 2% of ground against USD in overnight trading. Both nations are on the list to face harsher reciprocal tariffs than the baseline 10% rate, with Japan set to face 24% levies and Switzerland staring down a 31% rate. Global fears of a US economic slowdown or recession are outweighing the risks to these targeted nations, though, and as Japan’s economic data has remained strong over the last few weeks traders see the island nation as a much steadier and safer option for investment.
