Tariff Shock and Strong Dollar Rattle Global Markets as Fed-Cut Bets Recede

Markets digest new U.S. tariffs, firmer dollar and cooler Fed-cut odds

Asian equities fell on Friday after Washington announced a fresh round of tariffs on selected imports, while the U.S. dollar extended gains as resilient U.S. data nudged investors to pare expectations for aggressive Federal Reserve easing into year-end. Equity futures in Europe were steadier, oil ticked higher and gold softened as traders looked to U.S. PCE inflation for the next signal.

Asia session: pharmaceuticals, autos and exporters lead declines

President Donald Trump unveiled new levies including a 100% duty on imported branded drugs, along with higher tariffs on heavy-duty trucks and certain furniture categories effective Oct. 1. The move hit pharmaceutical benchmarks across the region and weighed on broader risk sentiment. Japan’s Topix pharma gauge slipped, Hong Kong drug makers fell, and Korea’s health-care names retreated, helping push headline indexes lower across North Asia.

FX and rates: strong dollar pins the yen; Fed-cut bets recede

The dollar index hovered near a two-month peak after a run of upside U.S. surprises, from GDP revisions to durable goods orders, trimmed the market’s conviction in a large cumulative cut by December. Pricing for a 50 bps move eased, with attention turning to PCE for confirmation that disinflation remains intact. The yen weakened toward key round numbers, reflecting both rate differentials and tariff-related risk aversion; the euro was little changed.

U.S. and Europe: futures mixed as investors eye PCE

S&P 500 futures were narrowly mixed in early dealings, with traders reluctant to re-risk ahead of the inflation print and fresh read-throughs for the Fed path. European futures edged modestly higher after the previous session’s risk-off tone, while sector leadership continued to rotate with energy steadier on firmer crude.

Commodities: oil firmer, gold softer as real yields hold up

Crude prices gained as product markets stayed tight and geopolitical risk premia lingered, while gold eased on the combination of a stronger dollar and stickier real yields. Industrial metals were range-bound, reflecting softer China sentiment offset by supply constraints in select markets.

Policy backdrop: tariffs complicate the growth/inflation mix

The latest tariff package adds a fresh policy impulse into an already delicate global setup. For Asia’s exporters, higher U.S. barriers can damp earnings visibility even if pass-through proves partial. At the macro level, tariffs can be both disinflationary (if they suppress demand) and inflationary (if they lift import costs). For now, markets are treating the announcement primarily as a growth headwind that strengthens the dollar via safe-haven and relative-growth channels.

Positioning: Fed-cut bets recede, volatility risk into month-end

The combination of new U.S. tariffs and firmer activity data has faded expectations for aggressive Fed cuts, reducing prospects of a front-loaded easing cycle. That pushes more weight onto upcoming PCE, payrolls and ISM prints. With quarter-end rebalancing near, liquidity pockets could magnify moves in FX and rates; equity volatility typically rises into data that can swing the “higher-for-longer” vs. “soft-landing” debate.

What we’re watching next

• U.S. PCE inflation & spending: A 0.3% m/m PCE print would keep core disinflation on track but not fast enough to re-ignite large Fed-cut bets.
• Asia corporate guidance: Exporters and pharma with U.S. exposure may update tariff sensitivities.
• FX intervention risk: A weaker yen alongside a strong dollar keeps the watch for verbal pushback or smoothing operations alive.
• Energy & gold: Follow-through in crude and bullion will reflect the balance between growth worries and dollar strength.

Market implications: playbook for portfolios

• Equities: Tariff-exposed health-care and exporters face headline risk; domestically oriented value may hold better if the strong dollar persists. The energy complex benefits from firmer oil, while rate-sensitive growth trades typically lag on higher real yields.
• Rates: Softer odds of rapid Fed easing keep curves biased to bear-flatten on upside surprises; month-end could add technical noise.
• FX: Strong-dollar regime favors carry unwind in high-beta FX; watch yen levels near intervention-sensitive zones.
• Commodities: Diesel-led distillate tightness and geopolitics support crude; gold needs either a weaker dollar or lower real yields to base.