Fx Market Remains Indifferent

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Fx Market Remains Indifferent

Fx Market Remains Indifferent To Tariffs

If we look at the last few months, the talk of the town was tariffs. At that time, even a small announcement led to major moves in the FX market.

But now, the market hardly shows any reaction even when a 100% tariff is put on the pharma sector. One reason for this behavior is that the markets are now desensitized to the tariff news.

More Rate Cuts From Fed Are Expected

In other words, the FX markets are now focused on other stuff and have left the tariffs behind. Another angle is that the tariffs are placed on multiple trading partners, and the markets have already priced all of that.

According to Commerzbank, the tariffs were mostly related to the US Dollar. It was clear that higher tariffs would ultimately drive up inflation in the USA.

In order to curb the higher inflation, the Fed will have to restrict its monetary policy. The end result will be appreciation in the US Dollar.

But it appears the markets have already priced in the rate cuts from the Federal Reserve. This comes at a time when inflation is actually rising!

The tariffs by the US are now putting pressure on the economic growth of the export-dependent countries. Meanwhile, exporters are trying to sell stuff in other markets besides the US.

But Commerzbank believes that the tariffs are actually impacting the trade between countries. For starters, the US-China trade volume has declined, which was expected.

In Brazil, the US exports have weakened as the tariff is around 50%. In Switzerland, the tariff is 30% and there is still no weakness in the US exports.

All of this means the tariffs are actually showing an impact on the market. However, it will take some time for the impact of tariffs to become apparent.

So once we start to see data showing impacts of the tariffs, then we will also start to see their effect on the FX markets.

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