Synopsis:

Credit Agricole argues that US President Donald Trump’s newly announced reciprocal tariffs have triggered a negative risk reaction, as the structure and breadth of the tariffs are seen as damaging to the US economy and currency. Despite safe-haven conditions, the USD has underperformed, with the market seeing the move as stagflationary rather than protective.

Key Points:

• Tariff Structure:
  Trump introduced a hybrid tariff model: 10% on all partners, with additional levies equal to half the tariff the partner imposes on the US.
  While that suggests a negotiation window, the damage from retaliation and uncertainty looms.

• Market Reaction:

  • Risk-off sentiment is dominating FX markets.

  • Safe havens like CHF and JPY—despite facing the highest tariff rates (31% and 24% respectively)—have outperformed.

  • The USD has weakened as the tariffs are perceived as stagflationary (lower growth + higher inflation = lower real rates).

  • SEK, EUR, and GBP also gained, with Sweden untouched, the UK only hit with a 10% baseline, and the EU facing 20%, less than previously feared.

• North American Trade:

  • Canada avoided reciprocal tariffs for now (despite border/fentanyl tariffs), lifting CAD sentiment.

  • Australia and NZ got the minimum 10% rate, but are indirectly impacted through China, which now faces over 50% tariffs and has already responded with CNY depreciation.

Conclusion:

While Trump’s tariffs offered some clarity and negotiation potential, markets are reacting to the economic costs. The USD is not behaving as a safe haven, and instead, currencies of countries perceived as less exposed to retaliation or benefiting from a lighter tariff regime (like SEK, CHF, JPY, GBP, and CAD) are outperforming. The global FX market sees these tariffs as an act of economic self-harm by the US, undermining the greenback.