Investors have grown more nervous as “Liberation Day”, the day US President Donald Trump will announce his reciprocal tariffs, has approached. While last week the President suggesting he would be lenient buoyed sentiment, this optimism quickly faded as he implemented auto tariffs and deliberations on tariffs are reportedly going down to the wire.
Investors face several concerns today:
(1) that tariffs will be broad based and implemented at high rates leading to large negative impacts on global trade and economic activity while also adding to inflation;
(2) retaliatory tariffs by other countries leading to spiralling tariffs as the US potentially responds; and
(3) that today will not be the end of Trump’s tariff tirade and therefore uncertainty. Uncertainty leads to delays in investment and consumption decisions also hurting growth.
All the components of the FX Risk Index contributed to its rise over the past week. The largest positives for the Index were rising credit and Sovereign-EM spreads as well as FX volatility.
So far in 2025, the AUD, USD and NZD have the strongest negative correlations with our Risk Index. The SEK, JPY, GBP and EUR have the strongest positive correlations with the Index.
