FX alert: Yen leads, Dollar bleeds – FX screams risk-off after Trump tariff move

True to form, Trump delivered — slapping heavy tariffs on the countries he blames for America’s trade deficit. But here’s the problem for the dollar: without a fiscal offset( a reverse Doge chainsaw, if you will) — no tax cuts, no meaningful growth kicker — the US economy is absorbing the hit with no cushion. And equities are showing it. We’re seeing broad-based selling and a clean flight to safety, and its not the dollar. As one trader said on chat this morning: “Just look at CNH/JPY(-1.6%) — it’s the cleanest expression of what’s unfolding in FX.” Risk-off is back, and the yen is leading the charge.

Over in the euro space, the blowback to US growth is dominating. The DXY has cracked to new year-to-date lows as markets digest what these reciprocal tariffs really mean for business confidence and consumption. The uncertainty is toxic — it's been dragging US stocks lower all year, forcing a dovish re-pricing in Fed expectations and weighing on the dollar. EUR/USD popped roughly 1% post-announcement, and I’ll be honest: I don’t quite buy the idea that the euro’s “cleaner dirty shirt” status suddenly makes it the hero of FX. But that is not what today’s price action is telling you.

But FX is a relative price — always has been, always will be. And the magnitude of USD weakness versus EUR will come down to how investors see the relative growth and yield outlook on both sides of the Atlantic. That’s exactly why I’ve been banging the drum on second-order effects. This is where the rubber meets the road. Do policymakers — especially in Europe — have anything left in the immediate stimulus tank? Because if they don’t, the dollar might not stay on the back foot for long.

The core bid under the euro right now isn’t about eurozone strength — it’s about dollar weakness. In a market grasping for safety and liquidity, the euro is the cleanest non-dollar alternative on the board. It’s deep, it’s liquid, and most importantly, it’s not the U.S. dollar — which is getting hammered vs the Euro by collapsing consumption signals and recessionary repricing.

Put simply: the euro is acting like a second-tier safe haven. Not because Europe’s macro is stellar — it’s not — but because the U.S. outlook just took a hit to the chin. When the dollar stumbles, the euro catches the relative bid. This is a FX game of "less bad" — and right now, the euro is wearing the cleanest dirty shirt in the global laundry basket.

As I flagged yesterday, for traders chasing precision in the post-announcement storm, USD/JPY is the cleanest, tightest RoRo (Risk-On/Risk-Off) proxy on the FX board.

Goldman Sachs added fuel to that fire with a well-timed note yesterday framing the yen as the macro hedge of choice if recession odds spike post-tariffs. Kamakshya Trivedi put it bluntly: “The yen tends to do best when U.S. real rates and equities are falling together.”

In other words — if Trump’s tariff barrage starts choking growth, USD/JPY isn’t just drifting lower, it’s tanking. Goldman’s base case targets 140, , and well south of the 145 consensus sitting in Bloomberg’s survey. With U.S. consumption wobbling and volatility still mispriced, the yen gives you a convex downside and real macro teeth. It’s not just a hedge — it’s the trade.

As for the Fed — they’re about to get dragged into this whether they like it or not. Markets are moving fast, and price action is morphing into a major macro risk. This isn’t just about equities puking anymore. It’s about confidence. Policy. Growth. And the bottom line is this: the Fed is the only central bank with enough firepower to stop the bleeding. Let’s see if they blink.