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The US Dollar (USD) is experiencing notable losses against major currencies due to the impact of tariffs announced by President Trump. The European Central Bank is set to release Monetary Policy Meeting Accounts, while the US will provide weekly Initial Jobless Claims and March ISM Services PMI data.
This week, the USD decreased by 1.25% against the Euro and 1.78% against the Pound, showing the most significant decline against the Japanese Yen at 1.78%. New tariffs include a baseline 10% on imports, with specific rates for various countries, while the USD Index fell 1% to around 102.50.
In response to the tariffs, the European Commission indicated potential countermeasures, while the Euro traded at its highest since October. The GBP rose above 1.3100, and the USD/CAD fell below 1.4200, reflecting market reactions to the tariffs.
Market Reaction To Tariff Announcements
Gold reached a record high above $3,160 but was trading lower at $3,125 later on. Data from China showed improvements in the Caixin Services PMI, which rose from 51.4 to 51.9 in March, contrasting with the situation in the US.
Tariffs are customs duties aimed at protecting local industries, with distinctions from taxes in terms of timing and payment. Economist opinions vary on tariffs, with some supporting them for domestic protection and others cautioning against potential price increases.
As we look at what’s unfolded recently, the decline in the US Dollar cannot be separated from President Trump’s decision to implement tariffs on a wide array of imports. When a government applies such duties, the immediate aim is usually to shield internal industries from overseas competition. However, the ripple effects go beyond that—what we’ve seen instead is a shift in global sentiment toward the greenback.
The Broader Impact On Currency Markets
The EUR/USD rising by over 1% tells us global participants have rebalanced some of their positions in response. The same pattern with GBP/USD and its rise beyond 1.3100 further supports the view that confidence in the Dollar’s strength short term has become less convincing. When USD/JPY drops 1.78% in a week, we take notice, especially since the Yen tends to attract flows during uncertain periods. It isn’t just about directional moves—it feeds into implied volatility, options skew, and convexity in multi-asset hedging.
Meanwhile, the US Dollar Index falling to around 102.50 after losing 1% reflects not only knee-jerk FX reactions but also wider uncertainty. These declines aren’t random fluctuations; they stem from perceived costs of protectionism, concerns around international retaliation, and a recalibration of risk across equity and derivative markets.
Across the Atlantic, the European Commission didn’t waste time. Their mention of possible reciprocal measures injected added layers of anxiety, particularly among participants managing gamma exposure and higher-order vol dynamics. There’s no direct trade flow clue yet, but forward-looking curves in Euribor and Bund futures began absorbing these developments immediately.
The Monetary Policy Meeting Accounts from the ECB are looming. Although they are backward-looking by design, these minutes often give us a glimpse into the internal debate around inflation expectations, liquidity provisioning, and policy calibration. If the document shows even moderate tightening bias, euro options could reprice sharply.
While gold reaching above $3,160 before easing to $3,125 suggests some cooling after a flight-to-safety move, the bigger narrative is still supportive. The precious metal tends to move inverse to real yields and USD sentiment. Our bias remains that long volatility strategies hedged with metals exposure could maintain their edge, especially with the added uncertainty from trade war rhetoric.
Over in Asia, the Caixin Services PMI inching up to 51.9 further illustrates the growing divergence in strength between China and the US. When combined with a weakening Dollar, this makes synthetic USD/CNH vols an increasingly attractive play. The divergence might tempt strategies like long China carry trades, rolled through FX swap markets with built-in optionality to handle headline risk.
All the while, traders continue to watch the US data calendar—Initial Jobless Claims and ISM Services to be specific. Any softness there could challenge rate expectations and bring options-related positioning into sharper focus, especially ahead of quarterly roll periods. For now, skew remains biased towards Dollar downside, and that’s unlikely to shift unless incoming data builds a case for tighter Federal Reserve action.
Overall, there’s no doubt about the tone. Tariff policy has real consequences, not just politically but also across macro hedges and volatility surfaces. That initial 10% may seem simple on paper, but already, pricing across majors indicates the implications go deep. Whether using futures, swaps, or options, the next few weeks will demand clear risk parameters and precise follow-through on trade convexity.
