U.S. President Donald Trump‘s initial tariff actions against Canada, Mexico and China sparked a rise in broad market volatility and a rush to take guard against increased ructions across asset classes from stocks to currencies.

The U.S. President’s weekend orders for additional levies of 25% on imports from Mexico and most goods from Canada, as well as 10% on goods from China, jolted markets surprised by the speed and intensity of these moves so soon after his inauguration.

Analysts estimate the tariffs could raise the risk of a sharp slowdown in global growth, resurgent inflation and a pause to Federal Reserve rate cuts, prompting a bout of risk aversion from investors.

The Cboe Volatility Index – an options-based gauge of investor expectation for near-term stock market moves – jumped to a 1-week high of 20.41, before paring gains to trade up 2 points at 18.43. While that is still below the index’s long-term average of 19.4, it is well above its average reading over the past year of 15.8.

Currency markets were also roiled with an across the board rise in implied volatility – a measure of how much the market expects prices to fluctuate in the future. Volatility expectations for currencies directly in Trump’s crosshairs saw the biggest surge, but other major pairs including the euro-dollar saw a rise in expectation for future moves.

One-month implied volatility for the dollar/Mexican peso pair jumped to 15.6, the highest since mid November, and about 3 points higher than its 5-year average. Meanwhile, implied volatility for the dollar/Canadian dollar pair soared as high as 9.3, its highest since November 2022.

While volatility expectations for various assets had ticked up in the days before the tariffs announcement and various currencies had weakened against the dollar on expectations for tariff-related headlines, the intensity of the market reaction to the weekend headlines shows investors were not quite prepared for it, analysts said.

“Generally speaking, investors were not taking Trump seriously or literally … the announcement on Saturday as well as comments after that have compelled investors to reassess the risk,” Karl Schamotta, chief market strategist with payments company Corpay in Toronto, said.

Adding to the uncertainty is the possibility that some sort of deal is arrived at between the U.S. and other countries that allows for tariffs to be averted in a lasting way.

The Mexican peso, which had plunged to a near three-year low against the dollar on news of the impending tariffs, reversed course to trade up 0.5% on the day after Trump said he would pause new tariffs on Mexico for one month.

“The headlines come at you very fast,” Mandy Xu head of derivatives market intelligence at Cboe Global Markets, said.
“I think this unpredictability is partly what is driving this huge surge in option volume that we’re seeing so far,” she said.