Insights 
VT 
In the past, tariff announcements caused turmoil in foreign exchange markets. Currently, the market seems largely indifferent even to the threat of 100% tariffs on pharmaceuticals. This could be due to desensitisation or the market having already priced in the tariffs. Although US tariffs were expected to lead to higher inflation, the market has remained relatively stable.
Interest Rate Expectations
Interest rate expectations have been affected, with larger cuts being priced in, yet growth remains robust in various countries. US tariffs are pressuring growth in export-dependent countries, prompting more expansionary monetary policies. Actual trade data shows minor effects, but shifts are occurring, especially in trade with Southeast Asia and Brazil.
US exports to Brazil are weakening slightly due to a 50% tariff, though other destinations appear increasingly appealing. In Switzerland, US exports remain steady with a 39% tariff, aided by pull-forward effects. While significant market impact might not be immediately visible, shifts in trade patterns suggest potential long-term effects. The FXStreet Insights Team, comprising journalists, curates market insights from experts, providing analysis from internal and external sources.
As of October 23, 2025, the foreign exchange market appears to have grown accustomed to tariff announcements, showing little reaction even to threats of 100% duties on pharmaceuticals. Earlier in 2025, such news would have caused significant turmoil, but now the market has likely priced in the existing trade frictions. We believe the focus has shifted from the initial shock of tariffs to their delayed, real-world economic consequences.
The standard logic that tariffs lead to inflation, a restrictive Fed, and a stronger dollar is no longer holding up. In fact, despite the latest September 2025 U.S. Consumer Price Index data showing a stubborn 3.8% year-over-year inflation rate, futures markets are pricing in rate cuts. The CME FedWatch Tool currently indicates a 65% probability of a 25-basis-point rate cut by the January 2026 meeting, creating a confusing picture for currency traders.
Positioning for Increased Volatility
Given this conflict between rising inflation expectations and predictions of a more lenient Fed, positioning for increased volatility is a prudent strategy. Instead of making simple directional bets on the U.S. dollar, we see value in using options to trade volatility through straddles or strangles on major pairs like EUR/USD. This approach allows traders to profit from a significant market move in either direction, which seems likely once the Fed’s true policy path becomes clearer.
We can look back to the 2018-2019 period for a historical parallel, where initial tariff shocks were followed by a prolonged phase where the market awaited concrete evidence of economic damage. During that time, trade data eventually revealed shifts in supply chains, a development we are beginning to see now. Recent Q3 2025 data shows U.S. imports from Vietnam and Mexico are up 15% and 12% respectively, while imports from China continue to lag, confirming that trade diversion is accelerating beneath the surface.
The actual trade data has not yet shown the major disruptive effects that were anticipated, but this is likely a matter of timing. We are now advising traders to closely monitor the upcoming Q3 2025 earnings reports from multinational industrial and retail companies. Their forward guidance on supply chain costs and international demand will be a more reliable indicator of the tariffs’ impact than the broad government trade balance figures.
Ultimately, the situation has evolved from a simple U.S. story into a complex global one, as other export-dependent nations also face pressure to ease their own monetary policies. The key for derivatives trading in the coming weeks is not just forecasting the Fed’s next move, but how it will compare to actions from the European Central Bank and others. This environment favors relative value trades and strategies that can capitalize on policy divergence between central banks.
