Trump’s Trade Rhetoric: Tariffs, Tensions, Market Volatility send the dollar up then down

The USD moved higher in the early Asian Pacific session as the ups-and-downs from Pres. Trump continued. He eased rhetoric on China which was the topic yesterday after comments from Treas Sec.Bessent that the standoff with China — which he said was essentially an embargo — is unsustainable and that he expects it to de-escalate. He said that while formal negotiations haven’t commenced, a deal remains possible. Of course, there weren’t any progess, but that it couldn’t get any worse since trade has stopped with 145% tariffs.

The EUR, GBP and JPY all rallied with the EURUSD and the USDJPY extending to and through their 200 hour MAs in the process. However, those breaks could not be sustained and the prices are back between the 100 and 200 hour MAs to start the day. The market is saying “Let’s get to neutral territory” and being between those MA is neutral from a technical perspective. Traders will be waiting for the next shove, but it may take something a little more substantial – not just leaked comments from behind closed doors in front of the most wealthy. Why is the Treasury Sec making closed door speeches?

In the video above, I talk to the technicals that are driving the 3 major currencies now and show the risk, target and bias defining levels in each.

As a more detailed summary of the major news overnight:

• Donald Trump made a series of pointed remarks regarding trade, tariffs, and international relations, particularly focused on China and the European Union. He asserted that the U.S. would be “very good to China” but confirmed that the China tariffs are effectively an embargo, stating, “That’s true.” While he noted that tariffs would come down “substantially,” he emphasized they “won’t be zero,” and insisted the U.S. is “taking in a lot of money” from them. Trump also highlighted that the U.S. is getting a “baseline of 10%” and “25% from the auto industry and steel,” framing tariffs as beneficial tools for the American economy.
• He expressed confidence in the trade approach, saying the “days of losing on trade are gone” and that this is merely “a transition period,” though “it’ll be a little while.” Trump downplayed the need for tough talk with China, stating he wouldn’t “play hardball” or mention COVID, and emphasized that other countries “have to make a deal.” He warned that if they don’t, “we’ll set the deal” ourselves. Regarding the EU, he accused it of previously taking advantage of the U.S. but noted, “EU is not doing that anymore.” He reiterated that countries with VAT systems already place burdens on trade.
• He offered reassurance about market conditions, pointing out that the “stock market was up nicely,” and made clear that tariffs were structured to support domestic job creation—“they don’t have to pay if they come in, create jobs.” His remarks projected strength in trade negotiations while trying to maintain public and market confidence in the face of escalating global tensions.
• Finally, he backed off of from his comments on firing “Mr. Too Late”, a “major loser”, Fed Chair Powell saying he wants Powell to be more active on rates.

Regarding Fedspeak:

• Federal Reserve Governor Kugler warned that recently announced tariffs are significantly larger than expected and are likely to drive prices higher, adding to economic uncertainty. She noted that these shocks, largely stemming from tariffs, could have more profound effects than initially anticipated. Despite this, she supports holding the policy rate steady as long as inflation risks remain elevated and economic activity and employment stay relatively stable. Kugler emphasized that the Fed’s current stance is well-positioned to handle macroeconomic shifts, though persistent tightening in financial markets could weigh on future growth. Inflation progress has slowed and remains above the 2% target, but longer-term expectations appear well-anchored, which she hopes will continue.
• She acknowledged that first-quarter GDP might reflect some moderation, partly due to front-loaded purchases ahead of tariff implementation. While the labor market remains broadly balanced, she is monitoring potential downside risks, particularly in sectors like agriculture and construction that rely heavily on immigrant labor. Wages in those sectors remain consistent with 2% inflation, and overall wage growth is not fueling inflation in services. Kugler also addressed public trust in the Fed, stating that inflation expectations remain anchored and that the public has not lost confidence in the central bank. On financial markets, she commented that unusual moves—such as rising bond yields alongside a weaker dollar—should not be seen as a loss of the U.S. safe haven status or a reflection of Fed performance. Lastly, she noted that while AI might not displace workers broadly, it could enhance productivity, but warned against overprotection of the economy at the expense of innovation and new business formation.

In Europe, the flesh PMI data all were below the 50 level and mostly lower than the previous month:

• France Flash Manufacturing PMI: 48.2 vs 48.5 previous (lower)

• France Flash Services PMI: 46.8 vs 47.9 previous (lower)

• Germany Flash Manufacturing PMI: 48.0 vs 48.3 previous (lower)

• Germany Flash Services PMI: 48.8 vs 50.9 previous (lower)

• Eurozone Flash Manufacturing PMI: 48.7 vs 48.6 previous (higher)

• Eurozone Flash Services PMI: 49.7 vs 51.0 previous (lower)

• UK Flash Manufacturing PMI: 44.0 vs 44.9 previous (lower)

• UK Flash Services PMI: 48.9 vs 52.5 previous (lower)

The S&P global flash manufacturing and services indices will be released today at 9:45 AM. The expectations are for the

• Manufacturing PMI to decline to 49.1 from 50.2.
• The services flash estimate is expected to decline to 52.5 from 54.4.

Sales will also be reported at 10 AM with the expectations of an annualized sales pace of 0.680 million versus 0.676 million last month.

The major US indices are higher for the second consecutive day. The futures are currently imploying:

• Dow industrial average up 200 points
• S&P index up 125 points
• NASDAQ index up 517 points

Shares of Tesla are up 6.7% despite missing on earnings. Musk said that most of his work at DOGE was done.

in the US debt market, yields are lower out the curve and higher in the shorter end:

• 2 year yield 3.805%, +1.7 basis points
• 5-year yield 3.936%, -4.1 basis points
• 10 year yield 4.291%, -9.7 basis points
• 30 year yield 4.736%, -14.2 basis point

The US treasury will auction off five year notes at 1 PM ET. Yesterday the two-year note auctions was shown by international buyers, but domestic buyers took up the slack. However it was not without a positive tail of 0.6 basis points.

Oil inventory data will be released at 10:30 AM ET. The private data showed: