What is affect of tariff war on Forex, stock and crypto-world
Introduction
The imposition of sweeping tariffs by the Trump administration has triggered significant volatility across global financial markets, with distinct impacts on forex, equities, and cryptocurrencies. Below is a detailed analysis of the effects:
Forex Markets: Dollar Surge and Currency Weakness
USD Strengthens as Safe Haven
The US dollar surged to multi-year highs against major currencies, driven by safe-haven demand and expectations that tariffs will fuel inflation, delaying Federal Reserve rate cuts. Key movements include:
USD/CAD
Broke above 1.4689 (2016 high), targeting 1.50. The Canadian dollar hit its lowest since 2003 due to Canada’s 25% retaliatory tariffs on $155B of US goods.
USD/MXN
The peso neared a three-year low, with analysts predicting further depreciation to 23 per dollar if tensions escalate.
EUR/USD
The euro dropped to its lowest since November 2022, with risks of parity if the EU faces tariffs.
Mechanisms at Play
Tariffs are expected to disproportionately harm foreign economies, reduce demand for imports, and strengthen the dollar’s dominance.
Historical parallels to the 2018 trade war show similar currency dynamics.
Equities
Sector-Specific Selloffs and Volatility
Broad Market Declines
Global equity markets retreated, with S&P 500 futures down 0.5% and Asian indices like Japan’s Nikkei falling sharply.
Key drivers include
Automotive and Supply Chain Risks
Companies like GM, Stellantis, and Tesla face disruptions due to reliance on Mexican/Canadian supply chains
A UBS index of tariff-sensitive stocks fell nearly 4%.
Retaliation Fears
Canada and Mexico’s retaliatory measures, coupled with China’s WTO challenge, threaten corporate profits.
The Nasdaq Golden Dragon China Index dropped 3.5%.
Inflation Concerns
Higher input costs and potential stagflation (rising prices + slowing growth) could pressure margins, particularly in manufacturing and energy sectors.
Outlook
Markets brace for prolonged volatility, with focus on US economic data (e.g., nonfarm payrolls) to gauge resilience.
Cryptocurrencies
Short-Term Panic vs. Long-Term Hedge Debate
Immediate Selloff
Bitcoin fell below $97,000 (-4%), while altcoins like Ethereum (-8%) and Dogecoin (-14%) saw sharper drops. Over $540M in crypto positions were liquidated.
Risk-Off Sentiment
Tariffs spooked investors, triggering a flight from speculative assets. Crypto’s 24/7 trading amplified losses during weekend traditional market closures.
Contrarian Bull Case
Some analysts argue tariffs could boost Bitcoin long-term as:
Inflation Hedge
Rising import costs may increase demand for non-fiat stores of value.
Currency Devaluation
Retaliatory measures could weaken foreign currencies, enhancing Bitcoin’s appeal. Bitwise’s Jeff Park called tariffs “amazing for Bitcoin” in the long run.
Key Levels
Bitcoin’s $90,000 support is critical; a breach could signal deeper corrections.
Cross-Market Implications
Interconnected Risk
Forex volatility complicates corporate hedging, exacerbating equity market uncertainty.
Crypto’s correlation with tech stocks (e.g., Nasdaq) highlights vulnerability to broader risk aversion.
Stagflation fears could force central banks to prioritize inflation over growth, delaying monetary easing.
Historical Context
The 2018 trade war saw similar patterns: dollar strength, equity corrections, and crypto bear markets. However, today’s tariffs are broader (25% on Canada/Mexico, 10% on China) and risk deeper economic impacts.
Conclusion
The tariff war has reinforced the dollar’s dominance, rattled equities in trade-sensitive sectors, and triggered a crypto selloff. While forex and equity markets face prolonged turbulence, cryptocurrencies remain caught between short-term risk aversion and long-term hedge narratives. Investors should monitor retaliatory measures, inflation data, and central bank responses for further cues.
FAF review
Dollar has strengthen, but the total global loss in financial market is exorbitantly high.
Total losses are still crystallizing, the combined market cap erosion, GDP downgrades, and currency devaluations suggest multi trillion-dollar global economic ramifications over the coming year.
Right now $200 billion got wiped out in Crypto world. The most important is GDP projection of each nation will fall down in 2025.
Projected GDP Impact
Estimates suggest a 1.5 percentage point reduction in U.S. GDP growth for 2025 due to tariffs and retaliation, equivalent to ~$375 billion in lost economic output. It would be on similar lines depending upon GDP output of each nation.
S&P 500 futures fell 1.8%, Nasdaq futures slid 2.35%, and Dow futures dropped 1.2% in early Asian trading
We will be reviewing tariff affects on financial market and keep you updated.
