Trump’s 2025 Tariff Shockwave: Market Turmoil, Gold Breakout, and US Dollar Weakness

In April 2025, President Donald Trump intensified the US-China trade conflict by imposing a 145% tariff on Chinese imports. The move cited national security concerns and aimed to reduce dependency on foreign supply chains. China retaliated by raising tariffs on US goods to 125% and halting exports of critical rare earth minerals, disrupting global industries reliant on these materials. These actions have unsettled global markets, particularly affecting the technology and defence sectors. The response includes strengthened trade ties between China and alternative partners like the EU and Australia.

This article analyses the escalating US-China trade war and its impact on global markets. It examines market reactions to recent tariff developments, inflation trends, and shifts in investor sentiment across key asset classes.

Market Reactions: Volatility and Investor Concerns

The escalation in tariffs created immediate market volatility. In response, investors adjusted positions in response to policy shifts, inflation fears, and safe-haven demand. Although short-term relief from the 90-day tariff pause triggered broad market rallies, uncertainty remains high. Volatility indexes and credit spreads show deeper concerns over economic stability. Below is a breakdown of how key markets and instruments reacted over the past three days:

• S&P 500: Surged over 9% on April 9 after Trump paused most tariffs, marking one of its biggest gains since World War II.
• Nasdaq Composite: Surged over 12% as exemptions for semiconductors and smartphones boosted tech stocks.
• Dow Jones Industrial Average: Gained over 2,000 points due to renewed uncertainty.
• FTSE 100: Rebounds higher as global markets welcomed the short-term relief, though lingering trade risks capped gains.
• DAX: Gained over 1%, reflecting optimism in European equities after the tariff pause.
• Nikkei 225: Rebounds as Asian markets rallied on exemptions for tech-related products.
• Hang Seng Index: Rose as regional tech shares responded to temporary US tariff relief.
• Shanghai Composite: Gained on strong March export data and US tariff exemptions.

This increased volatility is also confirmed by the MOVE Index, which surged to 140 as shown in the chart below. This spike indicates stress in the US bond market and signals investor fears about economic stability and interest rate uncertainty.

On the other hand, Moody’s Baa corporate bond spreads have spiked to 1.97%, signalling a contraction in credit markets. These movements highlight the market’s fragile confidence and its sensitivity to evolving trade policies.

Gold Surges as Investors Seek Safe Havens

Gold (XAU) extended its rally as market volatility and credit stress deepened. Investors moved into safe-haven assets following sharp swings in equities and bonds. The volatility indicators discussed above reflect a risk-off sentiment and growing doubts about economic stability. As trade tensions persist, markets remain highly reactive to policy shifts. The fragile confidence continues to support the demand for gold and other defensive assets.

The long-term outlook for gold is clear on the quarterly chart, which shows a strong uptrend. The Q1 2025 candle continued the bullish momentum from 2024, suggesting that prices will likely increase. Historical patterns, including the bull flag, falling wedge, and cup and handle formation, suggest strong bullish momentum in gold. These formations indicate that prices are in a surge mode toward the $4,000 region.

Inflation Expectations and Consumer Sentiment

The surge in gold prices also reflects confusion about inflation trends. The chart below shows that March CPI data revealed a drop in core and headline inflation, indicating a possible economic slowdown.

However, inflation expectations are rising quickly, as seen in the chart below. According to the data, the University of Michigan’s April survey reported a 6.7% increase in expected price changes over the next year. In addition, long-term expectations also increased, with 5-year projections rising above 4.0%. Consequently, this mismatch signals fear of future inflation despite current disinflation.

At the same time, consumer sentiment dropped to recession levels, showing deep concern about the economy, as shown in the chart below.

Furthermore, expectations for future conditions fell even further, increasing the risk of weaker consumer spending. These shifts continue to support gold as a hedge in uncertain times. The uncertainty created by Trump’s aggressive tariffs has only intensified these fears, amplifying inflation expectations and safe-haven demand.

Currency Markets: Dollar Weakens, Euro and Yen Gain

The next wave in US dollar

Currency markets reacted sharply to rising trade tensions. The US dollar weakened as investors priced in slower growth and potential Fed rate cuts. Falling consumer sentiment and disinflation added pressure on the US dollar. At the same time, Trump’s tariff shock raised concerns over global trade stability, hurting dollar demand. As uncertainty grows, markets expect the next wave in the dollar to be downward. This weakness reflects a shift in capital toward safer and more stable currencies.

The weekly chart below further confirms the bearish trend, as the 100.65 support has been broken. The index is heading toward the ascending channel support around 96–97.

Euro & Japanese Yen as Safe Haven

The euro and Japanese yen gained as investors moved away from the weakening dollar. Trade tensions and falling US sentiment increased demand for safe-haven currencies. The euro benefited from stronger trade ties with China as Beijing shifted exports toward the EU. The yen also strengthened amid rising global uncertainty and its traditional safe-haven role.

The monthly chart for EUR/USD shows the pair attempting to break a long-term pivotal point at $1.12 in April 2025. A breakout above this level would complete the falling wedge pattern and signal a long-term bullish trend.

Similarly, strong safe-haven demand for the Japanese yen has pushed USD/JPY toward a key long-term support zone at $140–$141. If this level breaks, it could trigger a deeper decline.

In contrast, USD/CNH failed to break above $7.35, as the weakening dollar supported the yuan. As a result, the pair remains under pressure, and unless it clears the $7.35 resistance, upside momentum will likely remain limited.

Bottom Line

The Trump tariff escalation has shaken global markets, fueled inflation fears, and triggered a wave of safe-haven demand. Stocks remain volatile, gold surges and credit markets show signs of stress. Inflation expectations rise despite falling CPI, while consumer sentiment signals recession risks. The US dollar remains under pressure, and capital flows favour the euro and yen. These shifts highlight deep market uncertainty driven by policy shocks and economic instability. As trade tensions continue, investors will likely stay defensive and rely on safe-haven assets to navigate the turmoil.