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High-risk currencies experienced a rise during the night, possibly suggesting that the US might choose a uniform rate instead of tariffs specific to each country, which could be viewed as a bit more forgiving. However, there are also reports that a tailored tariff strategy is still being considered, and we primarily see potential for the US dollar to increase in value today, particularly in relation to commodity currencies.
USD: Tariff Notification at 10 PM CET The market’s response to today’s “liberation day” will vary based on the magnitude of tariffs, their regional and sector-based allocation, and the willingness to enter negotiations. The official announcement will be made at 4 PM ET/10 PM CET.
News sources indicate that Trump intends to impose a 20% tariff on most imports to the US, projecting around $660 billion in expected income, based on a reference point of 3. 3 trillion for US imports. It has also been suggested that a graduated system with varying rates or a tailored strategy is being evaluated.
There is anticipation that certain sensitive industries may be exempted to lessen the effects on American producers and consumers. It’s unclear whether new tariffs will be added to the current ones on cars and metals or if only the highest rates will be enforced.
The second layer of foreign exchange effect will be influenced by how tariffs are distributed geographically. Markets might view the 20% flat rate as a standard, which could create a stronger dollar reaction overall, but the specifics of the tariffs related to certain countries and products will influence how individual currencies behave in the markets. We continue to believe that European currencies face higher risks to their value in this scenario.
Ultimately, the US government’s stance on room for negotiations will play a critical role in how the market responds. Treasury Secretary Scott Bessent has allegedly informed lawmakers that this will be the peak for tariffs, after which there will be opportunities to negotiate to reduce them. There might be a tendency to reference the US-Canada-Mexico tariff situation as a model for this round, but we are more cautious in that regard.
Canada and Mexico were mainly targeted due to issues around border and drug trafficking; however, this wave of tariffs is being driven by the Treasury and Department of Commerce, theoretically stemming from investigations into trade practices and significantly aimed at generating revenue to support the tax cut rollover. This seems to be a more substantial and enduring measure from the US.
We have observed a notable increase in the performance of the AUD, NZD, NOK, and CAD overnight as a uniform tariff, rather than specific reciprocal tariffs, is viewed as slightly more lenient and significantly less unpredictable. Our perspective remains that downside risks prevail for all currencies compared to the dollar today.
The US may aim to announce stricter measures today before possibly easing them later, which might still shift positions into USD and JPY, with higher-risk currencies experiencing a more significant decline.
However, today’s strength of the dollar may not reflect a lasting trend. It will take some time to evaluate how long tariffs will be enforced; this, along with US economic reports (keep an eye on ADP payrolls today), will shape the outlook for the USD. We still anticipate a rise in the dollar beyond today’s events, but the journey may not be without bumps.
EUR: Potential to Factor in Additional Tariff Risks The EUR/USD has dipped slightly ahead of today’s tariff situation, yet trading patterns indicate significant buyer interest below 1. 080, suggesting that traders are hesitant to fully embrace a negative narrative for the euro driven by tariffs.
Our argument has been that the euro should account for greater risks associated with tariffs. Our models indicate that at the 1. 080 level, there is no risk premium factored into EUR/USD. If a 20% blanket tariff is implemented, the case for a decline in EUR/USD will be much stronger, although it may require stricter targeting of EU goods or nations to undermine the euro’s relatively stable status against other more volatile currencies.
Aside from today’s potential reaction, which may lean negative for the euro, the situation will likely be more complex. The ECB might surprise with a more hawkish stance during their meeting in two weeks, and the ongoing shift of investment from US assets to European ones could also support demand for the euro. We still expect a decrease in EUR/USD and have set a target of 1. 070, but it’s unlikely to be a straightforward decline, even if the US announces more stringent tariffs.
GBP: Evaluating the Relative Safe-Haven Status The value of the UK’s exports to the US makes up just under 2% of its GDP, while for the eurozone, it is at 3%. This difference is not huge, but the EU has been the primary target of Trump’s aggressive foreign policy.
Specifically, Trump has previously shown openness to a trade deal with the UK, putting British exports in line for potential exemptions should talks follow today’s announcement. The more traders believe there could be room for the initial tariff announcement to be softened through negotiations, the better sterling can perform against the euro.
In the short term, we largely see downside potential for EUR/GBP, with a drop below 0. 830 quite likely. In the long term, there may be opportunities for a recovery as expectations for Bank of England rates can be adjusted downward.
