Back in the spring, practically everything revolved around tariffs, and even the slightest announcement could cause turmoil in the foreign exchange markets. Now, however, the market is hardly reacting to the threat of 100% tariffs on pharmaceuticals. One possible reason for this is that the market has become desensitised to these tariffs and is now focusing on other issues. Another possibility is that, even though tariffs are now in place against many US trading partners, the foreign exchange market knows where it stands and has priced the tariffs accordingly, Commerzbank's FX analyst Michael Pfister notes.

Only minor effects can be seen in the actual trade data

"The tariff story was largely a USD story. The chain of effects was obvious: higher tariffs lead to higher US inflation. If the Fed responds with a restrictive monetary policy, the US Dollar (USD) benefits. Back in February, my former boss emphasised that the Fed's response could cause problems. That is exactly what happened. Significantly larger interest rate cuts are now being priced in, despite further increases in inflation expectations."

"US tariffs are putting pressure on growth in countries that depend on exports, while exporters are simultaneously trying to sell their goods outside the US at presumably lower prices. These two factors both argue in favour of a more expansionary monetary policy. The problem is that the available data is not as clear as hoped. So far, inflation does not appear to have had a significant impact, and growth has remained robust in many countries. However, this could still change. Interest rate expectations are definitely being affected, with many countries pricing in larger interest rate cuts, especially on Liberation Day. However, this has since stabilised to some extent. Furthermore, more interest rate cuts are now also expected from the Fed."

"So far, at least, only minor effects can be seen in the actual trade data. Beneath the surface, however, there are shifts in individual categories, and trade between the US and China has shifted more strongly towards Southeast Asian countries. In Brazil, where tariffs are at 50%, US exports are weakening somewhat, but other export destinations have become more attractive. In Switzerland (39% tariff), US exports have not yet weakened significantly, thanks in part to pull-forward effects in categories not yet affected by tariffs. This does not necessarily mean that the tariffs are not having a significant impact on the market. It may just take longer for this impact to become apparent."