|

Full-blown trade war 'may have only just begun' as investors fear global growth slowdown in 2025

The unveiling of some savage tariffs from the Trump administration over the weekend has wreaked havoc in financial markets.

It is perhaps not the size of the trade levies that has caught markets wrong-footed, but both the hastiness at which they will be imposed and the speed of the retaliatory response from authorities in Canada and Mexico. We have on our hands a full-blown trade war and one that, worryingly, may have only just begun, with President Trump hinting that the EU will be next to feel the wrath of his tariff policies.

There appears to be no economic rationale for these trade restrictions, and the big fear for investors is that these tariffs could act to significantly weaken global growth in 2025.

This creates an extremely unpleasant environment for risk assets, and a favourable one for the dollar, particularly given the growing threat of higher Federal Reserve rates for longer.

European currencies have borne the brunt of the sell-off so far, as have emerging markets, particularly among those that are acutely exposed to external demand.

Sterling has held up reasonably well so far, given that Britain appears low on the list of targets for tariffs, is not exposed to global demand and runs a decent trade surplus with the US, which may help sidestep any trade restrictions.

The onus will be on the Labour government to strike a deal with President Trump, yet Keir Starmer will be in Brussels this week as he attempts to ‘reset’ the UK’s relationship with the EU - not ideal timing.”

Author

Matthew Ryan, CFA

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

More from Matthew Ryan, CFA
Share:

Editor's Picks

EUR/USD: Breakdown below trading range support near 1.1770 comes into play

The EUR/USD pair opens with a bearish gap at the start of a new week as the US-Iran war-led global flight to safety boosts the US Dollar. Spot prices, however, lack follow-through selling and manage to hold above mid-1.1700s during the Asian session.

GBP/USD declines below 1.3450 on Middle East tensions, UK political uncertainty

The GBP/USD pair attracts some sellers to around 1.3420 during the early Asian session on Monday. The US Dollar edges higher against the Cable amid escalating tensions in the Middle East after recent US-Israeli strikes on Iran over the weekend.

Gold jumps over 2% toward $5,400 after US, Israel attack Iran

Gold is on fire at the start of the week, a widely expected move, as investors seek harbor in the traditional store of value, following the continued US and Israel attacks on Iran. The bright metal opened with a bullish gap of about $17 and rallied toward the $5,400 level as Asian traders hit their desks and reacted negatively to the weekend news of the Middle East conflict, rushing for cover in Gold.

Iran escalation: Quick thoughts on markets

Markets are likely to open the week with risk-off, with declines led by airlines, cyclicals and trade-exposed names, while energy, defense and “strategic” sectors may be relatively steadier.

Crisis in the Middle East: The market reaction

A primer on how markets will open on Monday, and why geopolitical risk may not be easily absorbed by financial markets this time around. Geopolitics and events between Iran, the US and the wider Middle East will dominate financial markets on Monday. The situation has continued to escalate as we move through Sunday. 

Starknet unveils strkBTC, shielded Bitcoin transactions on Ethereum Layer 2

Starknet, the Ethereum Layer 2 network developed by StarkWare, today announced strkBTC, a wrapped Bitcoin asset that introduces optional shielding while preserving full DeFi composability.