Insights 
VT 
The fluctuation in the US dollar this year is seen as normal. Despite these changes, the US maintains a strong dollar policy, as currencies naturally fluctuate.
Factors such as increased fiscal spending in Europe suggest the euro may strengthen. A position on the Federal Reserve will become available when Kugler departs early in the year. Several trade agreements, estimated between 10 to 12, are expected to conclude by that time.
Trade Negotiations Impact
Around 20 other countries will be impacted by reciprocal rates or a 10% baseline if they are engaged in negotiations. The outcome of these trade matters largely depends on Trump. It is anticipated that the US Trade Representative may initiate a 301 investigation into Canada’s digital services tax.
Regarding Canada’s digital services tax, there were expectations that it would be postponed, especially with the commencement of the Carney administration.
This expectation aimed for a mutual pause in tariffs, reflecting goodwill during ongoing trade discussions.
To understand what has been outlined thus far, we should first recognise that currency movements—particularly those involving the US dollar—are being viewed within historical norms. The dollar has not weakened in any threatening way, nor has it appreciated beyond the reach of underlying fundamentals. Instead, what we are seeing is a degree of volatility that aligns with how major currencies typically behave over medium-term periods. The policy from Washington remains clear: support for a stable and relatively strong dollar, even if market shifts occasionally obscure that stance in the short term.
Now, over in Europe, an uptick in joint fiscal expenditure—especially spend that supports future growth—points to a potential appreciation in the euro. European policymakers seen pushing calls for looser spending caps have likely encouraged this view. That’s stirring some demand for euro-denominated assets, especially where relative yield pickup appears plausible. That shift matters for traders not because of sentiment, but due to the way speculative positioning tends to extend when aligned with both rates expectations and fiscal dynamics.
Kugler’s Federal Reserve Vacancy
Kugler’s anticipated vacancy at the Federal Reserve is more than ceremonial. When a seat on the Board becomes available, we tend to adjust for the policy probability set tied to their replacement. The market usually prices in that transition well before it materialises, so any surprising nomination—especially one viewed as dovish—could anchor the front end of the curve, or at minimum rein in volatility around two-year futures.
On the trade front, with as many as a dozen agreements lined up for possible closure, there are concurrent knock-on effects. Not only would completed deals clear some policy uncertainty, they would also allow for better forecasting on reciprocal tariffs and customs adjustments ahead of expected economic calendars in the second quarter. That number—10 to 12—provides a fair indication of breadth, suggesting a scale wide enough to matter to capital allocation desks.
Reciprocity is inevitable when that many jurisdictions are involved. We have counted around 20 countries that fall either under current negotiations or into the automatic-tariff path defined by existing frameworks. The 10% base rate will be tested, particularly once outcomes are made public within existing rate schedules. While not every nation reacts immediately, those with dependencies on dollar-clearing or supply chains linked to US exporters will move first. It’s best not to expect uniform responses. Markets don’t trade policy—they trade relative timing.
The matter between Washington and Ottawa is somewhere between regulatory and retaliatory. The digital services tax—designed to ensure large foreign tech companies pay more into Canadian coffers—has long been viewed as a likely flashpoint. Initially, there was hope that this measure might be shelved until further alignment could be achieved with allies. Many expected this delay to form part of an informal tariff truce. That hope has faded somewhat.
Carney’s entry into the political picture had prompted talk of a pause, as business groups lobbied both sides to avoid escalation while broader talks were underway. Now, with the Office of the US Trade Representative weighing a Section 301 process, timelines tighten. Once 301 is underway, policy moves fast, and retaliatory options can emerge far ahead of clear public commentary.
At our desks, the reaction function is increasingly dependent on whether positions can remain delta-neutral into sudden rate shifts or headline volatility. On volume desks, what we are seeing is a renewed focus on short-dated options for major North American pairs, particularly those where implied-vol remains dislocated from historical averages.
For now, the tactical focus remains not on where rates land, but how fast. Every day of delay—or acceleration—in trade resolutions or policy appointments affects timing risk. For derivative exposure tied to USD crosses, structure matters more than opinion. It’s less about where the euro might go six months from now, and more about what that path looks like. Direction is second to timing. Straddle bias favours gamma.
