**Negotiations with Japan and India** A US federal court has temporarily reinstated reciprocal tariffs. Plaintiffs must respond by June 5 and the administration by June 9. Trump has urged countries to submit their best offers by June 4 during ongoing negotiations. Negotiations with Japan and India are facing challenges, with only 36 days left to finalize trade deals. Talks with China are not progressing, even with a truce in place. There are reports that Trump and Xi might communicate this week, but China has not provided any updates. The negotiation period has lasted 54 days, leading to questions about whether Trump will extend it or if he will face legal challenges over his tariffs. The stalled talks raise concerns about potential tariff increases on China if no progress is made. This uncertainty is affecting confidence in the US dollar, which is already under pressure from inconsistent policies and ongoing doubts. **Market Sentiment and Tariff Uncertainty** This update reveals the weak sentiment in the market at the start of the month, largely influenced by unclear policies and high-stakes negotiations. Although technology stocks have shown a slight rebound, overall concerns remain. The core issue is not just the tariffs but also the unpredictability of government actions. The US court’s decision to temporarily reinstate tariffs puts pressure on both government officials and challengers. With tight deadlines, plaintiffs need to act quickly, while the administration faces its own deadline soon after. Trump’s urging for trading partners to submit their best offers adds more pressure, making June 4 a critical date. Discussions with Japan and India are hitting roadblocks, and there are few days left to address significant gaps. The mood regarding China is cautious. While there are hints of high-level talks, the lack of communication from Beijing offers little hope. After nearly two months of negotiations, results are scarce. This raises questions about whether the administration will extend this period or consider increasing tariffs, which could spark legal challenges and lead to further confusion. Each route presents different consequences, especially for those monitoring future pricing. The currency markets are feeling the strain, and confidence in the dollar is shaky. This instability isn’t about interest rates, but rather stems from policy inconsistencies and changing statements. Participants are frequently reassessing volatility, showing reluctance to take strong directional bets. Short-dated options markets indicate that traders are frequently adjusting their expectations, with implied volatility peaking around court deadlines. There is increased demand for protections against rapid changes in geopolitical or trade risks. Given this uncertainty, there is little reason to hold unhedged positions in currency pairs affected by tariff discussions. Instead, we’re seeing more activity in straddles and strangles, suggesting traders anticipate significant movements without a clear direction. Exposures without rebalancing, especially in the one-to-three-week timeframe, now carry a higher risk of unexpected outcomes. This may require adjustments in margin allocations and closer monitoring of correlations between different assets, particularly where dollar weakness meets increased equity volatility. The uncertainty in negotiations has blurred what were once clear tactical positions. Traders are adapting by diversifying risk and reducing trade sizes. Overnight rates are being closely monitored as indicators of both policy direction and short-term funding stress. As risk appetite fluctuates, it’s important to pay attention to officials’ statements and the silence from other parties, and how this affects spreads. We are particularly focusing on short-term implied rates as indicators of market expectations regarding the progress—or lack of it—in these talks. Create your live VT Markets account and start trading now.

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