FX alert: Liberation day or detonation day? Markets brace for the tariff test

Market warp

Asian equities edged lower as traders moved to the sidelines, squashing liquidity ahead of what’s being dubbed “Liberation Day” — President Donald Trump’s high-stakes unveiling of sweeping reciprocal tariffs. With the announcement expected at 4 p.m. Washington time, the session felt like the calm before a potentially market-shaking storm.

Japan and South Korea led regional losses, while Hong Kong vacillated around flat. Futures in the U.S. and Europe pointed to a soggy open, suggesting the market is bracing rather than positioning. The dollar was flat, 10-year Treasury yields nudged higher after a three-day dip, and gold hovered just shy of a record — all signs of a market waiting, not committing.

But let’s be clear: equities will be the primary tell. The first real read will come from how stocks digest the announcement. Bonds and currencies will follow the equity lead, taking their cues from risk sentiment, not the headlines themselves. That’s why trying to game the initial bond move is a mug’s game — it’s equities that will set the tone.

That said, for traders looking to express the post-announcement reaction with precision, USDJPY is shaping up to be the sharpest one-day FX RoRo ( Risk On Risk Off ) play on the board.

Goldman Sachs dropped a timely note framing the yen as the cleanest macro hedge should recession odds rise in the wake of the tariffs. Kamakshya Trivedi, head of FX and rates strategy, spelled it out: “The yen tends to do best when U.S. real rates and equities are falling together.”

Translation? If markets read Trump’s tariffs as economically toxic, USDJPY is going lower — fast. Goldman’s base case sees a move to 140, a 7% drop from current levels, and notably more bearish than the 145 consensus view in Bloomberg’s survey. With U.S. growth expectations hanging by a thread and equity vols looking underpriced, the yen is a convex way to hedge the tail.

Positioning in this regard has been telling. Significant flows into Treasury calls, deeply skewed vol structures, and a rising bid in gold — which increased another 0.7% today — all indicate that this event is being viewed as a potential regime-changer. This could also trigger a massive sigh of relief rally if tariffs are less toxic.

The White House has been characteristically vague, but informed leaks suggest Trump is weighing three models,

• A flat 20% universal tariff ( Likely?).

• A tiered system with 3 brackets,

• Or country-specific levies.

Equities will speak. Bonds and currencies will translate.

A ray of hope ? Treasury Secretary Scott Bessent has reportedly reassured lawmakers that this is the tariff ceiling, not the floor — hinting at negotiation room post-rollout. But unlike the Canada-Mexico saga, which was more headline noise than structural shift, this play is being driven by the Treasury and Commerce Depts., underpinned by formal investigations and aimed squarely at fiscal revenue to plug the tax cut hole. Translation? This isn’t just sabre-rattling — this is policy.

Forex markets

President Trump’s long-telegraphed Liberation Day is finally upon us, with a 4:00 p.m. Eastern press event in the Rose Garden set to unleash the next chapter in U.S. trade policy. The market is bracing — but still arguably underpricing — the scale and shock potential of what’s coming.

Over the weekend, Trump teased a global tariff plan covering “essentially all” nations, but on Monday dialled back the tone, calling it “very nice, relatively speaking” while hammering home his favourite theme: reciprocity. That’s code for tit-for-tat, but in practice, it gives Washington free rein to impose whatever tariffs it wants, benchmarked to an ever-expanding list of perceived injustices.

Behind today’s announcement is the 397-page National Trade Estimate Report from USTR, dropped Monday, which breaks down barriers across 40 key U.S. trading partners. The document outlines 14 categories of trade friction — from subsidy regimes and tech restrictions to labor laws and procurement policies. You can bet Trump will cite these metrics as justification for broad-based, country-level tariffs, not sector-specific strikes.

Translation for traders? If the report is the blueprint, the countries highlighted most aggressively are likely first in line for the tariff guillotine. And that’s where things get interesting.

Who’s on the radar?
China leads the pack with a whopping 48 pages of grievances, followed by the EU (34), India (16), Russia (15), Indonesia (14), Japan and Türkiye (11 each), and others like the Philippines, Vietnam, South Korea, Mexico, and Canada in the 6–9-page range. Many of these names reportedly overlap with Treasury Secretary Bessent’s so-called “Dirty 15” — the core group that drives the lion’s share of U.S. trade volumes and imbalances.

What to watch: Market interpretation hinges on a few key swing factors:

• Blanket 20–25% global tariff across major partners? That’s the nuclear scenario — a blunt-force move that could ignite a full-scale risk-off firestorm across equities, credit, and EM FX.

• Tiered or selective carve-outs? If Trump name-drops potential exclusions (e.g., the UK), or gives allies like Canada and Mexico a lighter touch under USMCA, markets might breathe a little easier — at least initially.

• China treatment matters most. If Beijing escapes with a modest hike (say 10%), it signals calibration — especially if it's framed as follow-up to already-announced 10% levies. A surprise de-escalation here would be bullish.

• Tariff optics vs. execution. A headline 10% tariff on “most” countries would spook less than feared and could ease risk aversion. Anything below 15% is probably taken as a market-friendly outcome — relatively speaking.

Positioning disconnect?
The FX market doesn’t look remotely prepared for an aggressive outcome. Rates are drifting lower, but high-beta FX like CAD, AUD, NOK, and SEK outperformed yesterday — hardly the behavior of a market hedging for a global trade reset. If today’s plan is bigger and broader than expected, those FX winners could quickly flip to losers.

Bottom line: Markets are underpricing tariff risk. A lot rides on the tone, scope, and exemptions in today’s rollout. Expect fast repricing — and keep dry powder ready. We’re not just watching for tariffs — we’re watching for tremors.

The view

It’s been a while since a macro moment this loaded stared us in the face. “Liberation Day” is finally upon us—and while most traders have been prepping playbooks for weeks, we still don’t have clarity on what version of the tariff matrix Trump will unveil. This isn’t a binary catalyst. The spectrum ranges from symbolic optics to full-blown economic disruption. The former is priced. The latter? Still miles from being reflected across risk assets.

Let’s not pretend otherwise—trying to front-run a decision like this, with hours to go and zero visibility, is a mug’s game. It’s better to stay nimble, reactive, and sharp. The best market parallel in my career? Lehman weekend, September 2008. Traders left their desks that Friday knowing everything could change if Lehman wasn’t saved by Monday. It wasn’t. And the consequences didn't hit all at once. They cascaded through the week—starting with disbelief, then panic, then policy pivot.

Liberation Day could follow a similar arc. A shock-and-awe rollout could alter the DNA of global trade. Or, it might be a theatrical chest-thump that fizzles in a news cycle. Either way—do not trust the first market move. Remember: in the same week Lehman collapsed, the S&P 500 closed higher—lulled by the TARP rollout. It was a classic head-fake.

Bottom line: keep your powder dry, and your wits even sharper. Liberation Day may be the starting gun for a multi-week volatility wave. Or it may be the non-event that tees up the next real policy pivot. Either way, the smart play right now isn’t prediction. It’s precision.

Survival tip: revisit your hedges, recheck your stops, and respect the tape. The tariff script is still unwritten—but the reaction function is ours to control.