Insights 
VT 
Negotiations with Japan and India
The US federal court has temporarily reinstated reciprocal tariffs, pending responses from plaintiffs by 5 June and the administration by 9 June. Trump has cautioned countries to present their “best offers” by 4 June during ongoing negotiations.
Negotiations with Japan and India face obstacles, with 36 days remaining to finalise trade deals. Talks with China see little progress, despite a “truce” period. There are claims Trump and Xi might communicate this week, but China remains quiet.
The negotiation period has lasted 54 days, raising questions about the possibility of Trump extending it or facing court challenges over his tariffs. The lack of progress prompts questions about potential tariff increases on China if talks remain stagnant.
The situation creates numerous uncertainties, affecting confidence in the US dollar, already under pressure due to inconsistent policies and ongoing uncertainty.
Market Sentiment and Tariff Uncertainty
This update highlights the fragility in market sentiment as the month begins, anchored largely by policy ambiguity and tactical brinkmanship. Although technology stocks mounted a tentative rebound, it hasn’t gone far in soothing broader jitters. The spine of the issue lies not just in tariffs themselves, but in the unpredictability surrounding how authorities might proceed.
The decision by the US federal court to reinstate reciprocal tariffs—though temporary—tightens the frame for both officials and the challengers, with tight deadlines in place. It puts the ball firmly in both their courts. Plaintiffs must respond swiftly, while the administration faces its own cut-off shortly after. Meanwhile, a pointed statement from the President, urging trading partners to submit their “best offers”, fuels pressure. There is no mistaking the calendar: a sharp point looms on 4 June.
Talks with Japan and India have encountered bottlenecks, and with the clock ticking, there aren’t many days left to close what still appear to be large gaps. With regard to relations with China, the current mood is one of hesitance rather than openness. Though there are vague hints of senior-level dialogue, the signals are one-sided. Public silence from Beijing does not invite optimism.
At this point, nearly two months of formal negotiation have passed, with few visible results. This raises the matter of whether the administration might opt to stretch this period further. Alternatively, any move to heighten tariffs could ignite legal opposition, opening another front of confusion. Each path brings forward different implications, particularly for those tracking forward pricing.
Currency markets are absorbing the weight, and confidence in the dollar continues to wobble. This stress is not rooted in rate expectations, but rather policy inconsistencies and shifting rhetoric. We find ourselves reassessing volatility metrics more frequently now, with increased hedging activity from participants showing reluctance to assume directional bets.
Price action in short-dated options markets suggests traders are adjusting expectations more often, with implied volatility showing peaks around the court-ordered deadlines. There is heightened demand for protection in instruments sensitive to fast-moving geopolitical or trade-risk shifts.
From here, there is little incentive to hold unhedged directional positions tied to currency pairs most exposed to tariff rhetoric. Rather, we are seeing higher volumes in straddles and strangles, implying traders expect strong moves—without conviction over direction.
Holding exposures without rebalancing, particularly in the one-to-three week time frames, now carries a greater chance of non-linear outcomes. This may require adjustments in margin allocation and closer monitoring of cross-asset correlations, especially where dollar weakness converges with higher equity volatility.
Uncertainty in negotiations has begun to cloud what were otherwise straightforward tactical positions. Traders are adapting by spreading risk across expiration buckets and reducing notional size. Overnight rates are being watched closely, not just for clues on policy, but as a gauge for short-term funding stress.
As risk appetite remains flickering, it is useful to monitor not only statements from officials but also the tone of silence from other parties, and how that is priced into spreads. We’re placing particular value on short-term implied rates as signals for market expectations about progress—or the lack thereof—in these ongoing discussions.
