In the past, announcements about tariffs would shake up the foreign exchange markets. Nowadays, the market seems mostly unfazed, even by threats of 100% tariffs on pharmaceuticals. This change could be because investors have become desensitized or because they’ve already included these tariffs in their pricing. While there were expectations that US tariffs would lead to higher inflation, the market has remained stable.

Interest Rate Expectations

Expectations around interest rates have shifted, with larger cuts being anticipated, but growth in several countries continues to be strong. US tariffs are applying pressure on countries that rely heavily on exports, pushing them towards more flexible monetary policies. Actual trade data shows only minor impacts so far, but there are noticeable changes, especially in trade with Southeast Asia and Brazil. US exports to Brazil are slightly dropping due to a 50% tariff, while other markets are becoming more attractive. In Switzerland, US exports remain steady despite a 39% tariff, thanks to pull-forward effects. Though we may not see a dramatic market impact immediately, changes in trade patterns suggest possible long-term effects. The FXStreet Insights Team, made up of journalists, collects expert market insights, providing analysis from both internal and external sources. As of October 23, 2025, the foreign exchange market has adjusted to tariff announcements and shows little reaction to even threats of 100% tariffs on pharmaceuticals. Earlier this year, such news would have triggered significant unrest, but now the market has likely integrated these trade tensions into its pricing. The focus seems to have shifted from the immediate shock of tariffs to their longer-term economic impacts. The usual idea that tariffs lead to inflation, a more cautious Federal Reserve, and a stronger dollar isn’t holding true anymore. Despite September 2025 data showing a persistent 3.8% annual inflation rate, futures markets are predicting rate cuts. The CME FedWatch Tool indicates a 65% chance of a 25-basis-point cut by the January 2026 meeting, creating confusion for currency traders.

Positioning for Increased Volatility

Given the conflicting signals of rising inflation expectations and predictions of a more accommodating Fed, preparing for increased volatility is a smart strategy. Instead of simply betting on the direction of the US dollar, there is value in using options, such as straddles or strangles on major pairs like EUR/USD. This strategy allows traders to profit from significant moves in either direction, which seems likely as the Fed’s actual policy direction becomes clearer. We can look back to the 2018-2019 period for a similar scenario. During that time, initial tariff shocks were followed by a long wait for clear signs of economic damage. Eventually, trade data showed changes in supply chains, which we are starting to see again now. Recent Q3 2025 data reveals that US imports from Vietnam and Mexico have increased by 15% and 12%, respectively, while imports from China are still lagging, indicating a shift in trade patterns. So far, the actual trade data hasn’t reflected the major disruptions that many predicted, but this is likely just a timing issue. We advise traders to keep a close watch on the upcoming Q3 2025 earnings reports from multinational industrial and retail companies. Their guidance on supply chain costs and international demand will provide a clearer picture of the tariffs’ effects than broad government trade balance figures. In conclusion, the situation has transformed from a straightforward U.S. issue into a complex global one, as other export-driven nations also face pressure to adjust their monetary policies. For derivatives trading in the upcoming weeks, it’s crucial to not only predict the Fed’s next move but also to compare it with actions from the European Central Bank and others. This environment favors strategies that capitalize on the differences in policies between central banks. Create your live VT Markets account and start trading now.

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