(10 March 2025 – Global) FX volatility has stabilised after corporates were negatively impacted trying to anticipate the US President’s trade threats against China, Canada, Mexico and the European Union (EU).
Currency markets are increasingly dismissive of Donald Trump’s tariff threats, raising the risk of significant currency swings if the US president does in fact follow through on aggressive rhetoric to apply tariffs to China, Canada and Mexico in the coming weeks.
Trump’s proposal to bring in levies against the EU and China unsettled the Euro and currencies of other US trading partners last week. However, the immediate depreciation in major currency pairs against the greenback were less dramatic than some of the upheavals seen in recent weeks.
The US Federal Reserve remained on track to cut interest rates multiple times in 2025 despite heightened concerns of “Stagflation” (slowing growth and high inflation) as recession fears mount and inflation remains stubbornly embedded. US rate futures priced in 78 basis points (bps) of easing this year, or three rate cuts of 25 bps each, according to LSEG calculations. The first rate reduction is likely to resume in June 2025.
“The Fed is going to be very conservative on what they say until we know whether or not the tariffs are tactical or strategic, and if they do turn out to be strategic, they’re still going to wait until the hard data demonstrates both that inflation is low, and the economy is in recession before they really do very much” said Wilmington Trust Investment Advisors Chief Investment Officer, Tony Roth.