Global FX volatility spikes on Trump tariffs and central bank divergence

Foreign exchange markets experienced heightened volatility as Trump's aggressive tariff proposals intensified global trade tensions, driving safe-haven demand and USD strength. The dollar index climbed 0.9% to 106.50, its highest level in three weeks, while risk-sensitive currencies declined sharply. EUR/USD dropped 1.1% (120 pips) to 1.0780 as ECB-Fed policy divergence widened, with markets pricing a 75% probability of ECB rate cuts versus Fed hawkishness. Safe-haven flows benefited CHF and JPY, with USD/CHF falling 0.6% to 0.8920 and USD/JPY consolidating near 147.00 despite broader yen weakness. Emerging market currencies faced severe pressure, with USD/MXN surging 2.3% on direct tariff threats. Technical analysis reveals EUR/USD approaching critical support at 1.0750, while GBP/USD tests 1.2600. The confluence of protectionist policies, central bank divergence, and flight-to-quality flows suggests continued volatility ahead.