Reciprocal tariffs, along with other types of trade barriers, are some of the highlights from Donald Trump’s second administration. The policy influences the United States’ economy, threatens worldwide supply chains, and —as some experts say— may trigger a global slowdown. Clearly, reciprocal tariffs also have far-reaching impacts in the FX market.
This article will discuss what reciprocal tariffs are, why they matter, and what impact reciprocal tariffs could bring to the Forex market. In the end, traders may also gain some beneficial takeaways for their portfolios.
The planned economic stimulus package in Germany and a marked increase in defense spending in the eurozone are improving the economic outlook for the latter over the coming years, causing the euro to appreciate against the US dollar. The recent weakness of the USD was fueled by recession fears in the US due to enormous uncertainty surrounding tariffs, negative US economic growth of -0.3% q/q annualized in Q1 2025 and Trump’s attacks on Fed Chairman Powell.
The highly unpredictable US trade policy carries the risk of a loss of confidence in US assets in the event of a further escalation in the trade war following the three-month pause in reciprocal tariffs, which would put further pressure on the US dollar. We believe that EURUSD will remain volatile but consolidate at the current significantly higher level.
Yen – Volatile development after US tariff fiasco
Following Trump’s announcement of tariffs and their subsequent partial withdrawal in April, the yen appreciated sharply against the dollar.
As the euro strengthened against the US dollar at the same time, the yen weakened slightly against the euro. Statements by leading BoJ representatives and crisis meetings between the BoJ and the Ministry of Finance signal that the BoJ is prepared to intervene in the market. At its last meeting, the interest rate-setting committee decided not to raise interest rates in view of Trump’s unclear future course of action. At the same time, however, it emphasized that both growth and inflation were developing as desired. Further interest rate hikes at upcoming meetings cannot be ruled out but are unlikely for the time being due to the erratic tariff policy.