The United States’ trade policy has never been stronger. Yet this resolve persists despite a growing series of legal challenges to the International Emergency Economic Powers Act (IEEPA) tariffs. First, as firms adjust to an uncertain global environment, more appropriate effective tariff rates are likely to stay high until 2025. The Chinese tariffs are probably here to stay. This is largely driven by geopolitical concerns reshaping global alliances.
Yet, the US administration is still unconstitutionally imposing tariffs. This action follows increasing violence, particularly in the Middle East. This follows Iran’s promise to respond to Israel’s strikes, prompting concern from investors of wider conflict in the region. As these geopolitical tensions continued to build, risk aversion kicked in dramatically as well, leading to huge currency market swings.
On Friday morning, in the early European session, the GBP/USD currency pair fell below 1.3550. This decline indicates a deepening pressure on the Pound Sterling in contrast to the US Dollar. That surge in risk aversion has placed added downward pressure on the GBP, which most recently traded around 1.3530.
Market participants are closely monitoring the sentiment data from the US, as it may provide insight into economic conditions and investor confidence. The suspense underlining this data is extremely high, particularly as traders make a determination on how rising geopolitical tensions can affect the stability of this market.
The EUR/USD cross has been similarly impacted by risk-off sentiment, trading just below 1.1550 in that same session. That’s the biggest retreat since multi-year highs. This further points to a shift in investor sentiment tied to rising global tensions. While the duo has seen recent increases, the two have a difficult time holding onto their upward push in light of today’s extreme market volatility.
Trade deals once applauded by some as a cure to our current trade conflicts are now mostly symbolic. Given the persistent and complex geopolitical landscape that continues to drive market dynamics, their effectiveness seems clearly outweighed.
Investors are still trying to come to grips with the impact of these changes. They need to lead through a very difficult moment with lots of unknowns and possibility of more escalations in war. The perfect storm of economic and geopolitical factors creates an environment that makes it especially murky for market participants to make decisions.