A Brave New (Tariffed) World

Markets are regaining composure from the highs and lows of last week.

There has been some reprieve from tariff-mania, as Trump terminated tariffs on technology at the beginning of the week. Yet, they remain centre stage in investor’s minds, and markets are grappling with uncertainty.

The Noise

All equity markets, other than the US, posted positive returns this week. Yet we haven’t seen a full recovery to pre-Liberation Day levels, as the most severe tariffs have only been suspended - not removed - under a 90-day pause announced on April 9th, 2025. Investors are still taking stock and assessing the impact of Trump’s announcements last week, and how the shift in global economics will impact their investment outlooks. For more these tariffs and how they have changed our outlook, click here.
Currency markets picked up where they left off last week, with major currencies like the Euro, Sterling, and Yen appreciating in value, and the US Dollar deepening in its decline. The US Dollar index, which measures the dollar’s value compared to a basket of major currencies, hit a 3-year low.
Fixed income markets largely held onto last week’s recovery, with global government bonds yields coming down from their sharp increase (yields move inversely to prices). However, US Treasury yields ticked up on Thursday, after Federal Reserve Chairman Jerome Powell spoke about his concerns around the economic impact of tariffs on the US. Despite this, fixed income markets held steady over the week, with year-to-date returns remaining in positive territory.

The Nuance

Could the US Dollar be dethroned as the king of currencies? Before the latest wave of tariffs, the dollar was the dominant global reserve currency (currency widely used in international trade); a safe haven during periods of market stress. Yet the dollar has seen a steep decline since ‘Liberation Day’, with the US Dollar index which measures the dollar’s value against a basket of major currencies down around 8% since the beginning of the year.

So, what’s changed? The dollar’s depreciation relative to currencies reflects a combination of factors, including softer economic data, shifting interest rate expectations, and growing investor concern about political stability under Trump. This shift in sentiment has led investors to reallocate capital toward currencies viewed as more stable, such as the Euro or Swiss Franc.

This was evidenced by the Bank of America Global Fund Manager Survey this week. It asked 164 participants, who manage over $386bn in assets collectively, what they think about markets currently. Regarding currency, it reported that 61% of participants in this survey expect the dollar to depreciate over the next 12 months. This is the highest level of bearishness, which is the belief that an asset’s value may decline, towards the dollar in almost 20 years.

The dollar’s recent decline has sparked renewed debate about its long-term role in the global financial system and highlighted the importance of protecting against currency risk. While it continues to serve as the primary reserve currency, underpinned by the size and long-term stability of US financial markets, investors are increasingly open to a more diversified currency landscape.

Curious how investors protect themselves from currency swings? We explain currency risk and how to protect against it here.

The Niche – A fun financial fact

Who knew the value and weight of money adds up? Two 1p coins weigh the same as a 2p coin, and two 5p coins are as heavy as a 10p coin. This only applies to coins and not banknotes, but if we took this logic a step further, a £20 coin would weigh over 1kg!