Francesco Pesole from ING observes that tariff size and distribution will influence market reactions today

    by VT Markets
    /
    Apr 2, 2025

    The market’s reaction to today’s ‘liberation day’ hinges on tariff specifics, including their size and geographical distribution. An announcement is expected at 4PM ET/10PM CET, with reports indicating a potential 20% tariff on most US imports, potentially generating around $660bn in revenues.

    Tariff details could influence currency behaviour, with some currencies facing increased risks against the dollar. Recent performance of currencies like the AUD, NZD, NOK, and CAD suggests a flat tariff may be less unpredictable than case-specific measures.

    Shift In Safe Haven Demand

    Overall, a positioning shift into USD and JPY is possible, with high beta currencies likely to suffer more.

    The upcoming tariff announcement is shaping sentiment across currency and rate markets. While we’ve seen tentative posturing ahead of the 4PM ET release, the market remains largely on hold, reluctant to commit without clarity on scope and associated measures. If the widely reported 20% blanket tariff across most US imports does materialise, the size alone would make it one of the largest coordinated import restrictions in decades, introducing a new layer of complexity for cross-asset flows.

    So far, risk-sensitive currencies such as the Australian and New Zealand dollars have remained relatively contained, but that largely reflects uncertainty around the structure of the tariffs. A behavioural change could emerge rather quickly if tariffs are implemented on a discretionary, product-specific basis. Traders generally prefer uniformity in policy—it reduces guesswork and simplifies hedging. Case-by-case measures, on the other hand, create uneven exposure across economies, drainage of confidence, and scatter risk.

    If the tariffs lead to a surge in US trade revenues near the predicted $660 billion mark, the implications for global capital direction would not be minor. It would firmly enforce the dollar’s appeal in a risk-off rotation, particularly given the backdrop of relatively stable real yields in the US. That’s where the Japanese yen comes into play—historically a magnet when markets reprice volatility risk.

    Commodity Currencies Under Pressure

    We should also expect to see further underperformance in commodity-linked currencies. For context, the Canadian and Norwegian currencies have struggled to build sustained upward momentum despite relatively supportive terms of trade. That’s telling—it shows traders may already be anticipating secondary effects such as weaker global input demand, especially in resource-heavy sectors.

    In fixed income, there’s little genuine interest in taking large directional positions until the announcement lands. Still, forward curves suggest some pricing of upward pressure on US rates in response to any broad-based tariff. With that in mind, exposures in the short end may need adjusting sooner rather than later, especially for those with portfolios skewed towards rate-sensitive benchmarks.

    The focus now should be less on headlines and more on how quickly imbalances might surface. Differentials in monetary stance will become amplified if supply chains begin to fragment further. This puts even more weight on the sequencing of policy responses rather than their rhetoric. If previous cycles serve as any guide, the real move tends to follow not the initial policy, but the market’s interpretation of downstream inflation and manufacturing data four to six weeks out.

    Therefore, while today’s tariff announcement is key, attention must also be paid to subsequent language from export-dependent economies, especially those in Asia and Northern Europe, as they may front-load policy adjustments to counter any immediate dislocation. We would be keeping a close watch on central bank communication patterns and forward rate expectations, particularly for signs of diverging tones that hint at asymmetric transmission paths.

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