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The world has quickly awakened to the prospect of trade wars as the US slaps tariffs on just about every country. Stock markets everywhere are reeling, bond prices are tumbling and currency markets are seeing huge moves as investors react to the potential consequences.
Currency markets are in the epicentre as global trade tensions ratchet higher and the reality of tariffs threaten to disrupt routes and relationships. At the heart of president Donald Trump’s tariff strategy is the dollar’s exorbitant privilege that its status as the world’s trade and reserve currency brings it in a globalised world. And the question investors are asking is whether US assets should be viewed through a new lens.
But while the US$7.5 trillion foreign-exchange market is seeing record volumes and volatility shooting higher, there is one remarkable feature it has managed to retain: it is working in an orderly manner despite the seismic moves. As one FX market executive said, it is ironic that what is causing the issue – a strong dollar and therefore FX – is dealing with the onslaught of volatility just fine, while the same could not be said about US Treasury or equity markets.
“Interest-rate
