The EU’s Sefcovic announced discussions with Commerce Sec Lutnick, stating that counter-tariffs will be suspended while negotiations commence. Whether the US will allow tariff rates to fall below 10% remains a key question over the next 90 days.
The euro increased by 2.2%, marking its largest one-day gain since 2022, as funds move away from the US dollar. This uptick brings it closer to the highs seen in late 2024, driven more by substantial US dollar selling rather than the current news. Meanwhile, the Swiss franc significantly impacts the US dollar as well.
Temporary Pause On Tariffs
The statement from Sefcovic following talks with Lutnick confirms that both sides are pressing pause on mutual tariffs, at least temporarily. This gives some breathing room for negotiators to work through trade terms without further economic escalation. While the United States has not committed to reducing its tariff rate below the 10% mark, the question remains timely, particularly as talks are expected to stretch over a period of 90 days.
That opens room for speculation about trade policy shifts — or at least shifts in perception — that could ripple through markets well beyond raw materials and manufacturing figures. For those of us focusing on interest-rate-linked contracts or cross-currency positions, this pause hints at market conditions becoming more reactive to sentiment than to actual trade outcomes, at least in the short term.
The euro’s 2.2% move is not trivial. It’s the largest daily jump since 2022. But, more importantly, it exposes the scale of dollar weakness playing out at the moment. This surge happens not due to EU or eurozone optimism, but largely because investors are walking away from dollar holdings. Whether this trend is driven by concerns over US monetary policy, or strategic repositioning ahead of trade decisions, the outcome is the same – more momentum favouring foreign currencies.
Notably, we also see strong movement in the Swiss franc, which is having a measurable effect on the dollar index. The franc tends to strengthen when risk sentiment softens, but this latest shift suggests capital allocation strategies are changing, rather than reacting purely to risk aversion. What that likely tells us: traders are rotating portfolios deliberately, rather than acting on fear or headlines.
Repricing Hedging Costs And Forward Expectations
Discretion seems wise in the current climate. We’re looking at trade conditions where derivatives linked to currencies must take exaggerated volatility into account. If these FX movements persist, they begin to reprice hedging costs and forward expectations. Spreads will shift. Traders may be inclined to extend duration, especially in euro exposures, or look to hedge long dollar bets with higher-frequency updates.
As trade talks proceed, pricing mechanisms in forwards and swaps could reflect sentiment volatility above all else. That has implications. Options markets will readjust quicker than cash markets. We’ve already seen skews shift materially in 1-month euro-dollar implied volatility, and that may continue.
Moving broader, it is not just about currency pairs. Equity-index futures in sectors sensitive to trade — materials, transport, logistics — may start reacting pre-emptively, even if broader indices stay still. That’s cause to watch correlation breakdowns.
In short, the next few weeks are not a time for passive positioning. They call for regular recalibration, especially if policy direction comes from secondary sources or sudden statements.
