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US President Donald Trump's approach in the second term on tariff announcements has been perceived by markets as a more gradualist approach compared to his earlier aggressive campaign rhetoric, as per a report by Union Bank of India.
While Trump has threatened to impose tariffs on goods from several countries including China, Mexico, Canada, and the Eurozone, the current actions are more gradual than initially expected, leading to a measured response from financial markets. The report noted that the Dollar Index (DXY) has corrected by approximately 1 per cent since January 20, 2025, as markets view Trump's initial tariff announcements as less severe than anticipated. For instance, Trump has proposed a 10 per cent tariff on Chinese goods, significantly lower than the 60 per cent he had suggested during his election campaign. Similarly, tariffs of 25 per cent on goods from Mexico and Canada have been proposed, with implementation potentially starting as early as February 1. Additionally, tariffs on goods from the Eurozone, which enjoys a trade surplus with the U.S., and a 2.5 per cent tariff on global goods were also mentioned. These measures, while impactful, are seen as more moderate than earlier expectations, easing some market concerns. The report also emphasised that all eyes are now on the Federal Open Market Committee (FOMC) meeting scheduled for January 29. While markets have largely priced in the expectation that the Federal Reserve will keep interest rates unchanged, investors are keenly awaiting Chair Jerome Powell's comments. This is especially relevant after Trump's recent statement demanding lower interest rates globally, saying, "I'll demand that interest rates drop and likewise, they should be dropping all over the world. Interest rates should follow us all over immediately." Powell's remarks in the upcoming FOMC meeting could provide further clarity on the Fed's stance amid growing political pressure. In the near term, the U.S. dollar is expected to maintain its dominant performance against major currencies, driven by U.S. economic exceptionalism and monetary policy divergence. Slower growth in Asia and Europe compared to the U.S. further supports the dollar's strength, creating headwinds for other major currencies. As markets await final decisions on Trump's tariff policies and the Fed's next moves, the global economic landscape remains in a state of cautious anticipation. (ANI)
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