European and Asian markets were shaken by the announcement from Trump that he would impose tariff increases on China, Mexico and Canada on day one. The Europeans will also be in line for big tariff increases and markets are starting to build this in. The currencies are feeling the impact, with the EUR plunging to 1.0430, while the GBP slumped to 1.2510. Tariffs will hurt trade and the EU are amongst the largest imposers of tariffs and will thus become a focus of the Trump administration. The Fed may use the excuse that tariffs may bolster inflation to slow the rate cut cycle.
The heavily trade exposed commodity currencies will be impacted greatly by any increase in tariffs and the local currencies reflected that. The AUD crashed to 0.6440, while the NZD slipped back towards 0.5800, ahead of the key RBNZ Interest Rate Decision today. Rates are expected to be cut by up to 50 basis points, so this will impact interest rate differentials and trading partners cross rates.
