In the latest edition of our Market Review & Outlook, Dr. Claudio Wewel, FX Strategist at J. Safra Sarasin, reflects on how global markets reacted to President Trump’s April 2 announcement of “reciprocal tariffs” on U.S. imports. This abrupt policy move sent shockwaves through financial markets, reigniting fears of trade protectionism and prompting investors to launch what we’ve described as a broad-based “sell America” trade.
This shift was evident across multiple asset classes. The dollar weakened sharply, equity markets tumbled, and long-dated Treasury yields spiked—reflecting rising risk premiums. Notably, the DXY dollar index fell by 4% in April alone, while the Swiss franc appreciated by 7%, underscoring the flight to quality and safety. Gold also benefited from the increased uncertainty, posting a 6% monthly gain and extending its stellar year-to-date performance to 26%.
Yet markets proved resilient. Following President Trump’s announcement of a 90-day pause on the proposed tariffs, equity indices staged a strong rebound, nearly reversing the losses incurred earlier in the month. However, this recovery should not be mistaken for a return to stability. The policy backdrop remains highly unpredictable, and we expect elevated volatility to persist.
Mixed Signals Within the U.S. Economy
Within the United States, the economic picture remains nuanced. On the one hand, consumer sentiment has weakened notably, as reflected in the April drop in the University of Michigan’s survey. On the other hand, fundamental data such as labor market strength and manufacturing activity continue to show resilience—even as job cuts from the Department of Government Efficiency (DOGE) begin to take effect.
This divergence between soft and hard data complicates the outlook. While the immediate economic fallout from tariffs may take time to materialize in official figures, the prolonged uncertainty is likely to weigh on investment and consumer behavior. In anticipation, we have revised our U.S. GDP growth forecast for 2025 downward—from 2.2% to 1.3%.
Global Repercussions
The effects of U.S. trade policy extend beyond its borders. In the eurozone, business sentiment has weakened again after a brief improvement following Germany’s fiscal stimulus package earlier this year. We have lowered our euro area growth forecast for 2025 from 1% to 0.6%. A stronger euro—driven in part by declining confidence in the US dollar—may put further pressure on the region’s export competitiveness. However, this currency strength could help the ECB meet its inflation target faster, potentially enabling further interest rate cuts in the coming months.
In the UK, weak growth data suggest that the Bank of England will continue its gradual pace of easing. Meanwhile, the appreciation of the Swiss franc—among the largest gains among G10 currencies—has sparked speculation of possible intervention by the SNB, although we view such a step as unlikely for now.
In Asia, Japan’s inflation and wage data point to continued pressure on the Bank of Japan to normalize policy, even as global uncertainty warrants caution. China, meanwhile, is already experiencing the fallout from new U.S. trade measures. Despite selective exemptions (including electronics and semiconductors), additional fiscal stimulus will likely be needed to support Chinese growth, given the country’s export-heavy model.
Read the full article by Dr. Claudio Wewel on J. Safra Sarasin’s website
