Brazil, which holds the BRICS presidency this year, is steering the bloc toward a shift in global trade strategies.

While speculation about a BRICS common currency has fueled debates, Brazilian officials have confirmed that such a move is off the table for 2025.

Instead, the focus is on reducing reliance on the US dollar in international transactions—a shift that has drawn sharp warnings from Washington, particularly from President Donald Trump.

Trump warns BRICS over dollar dominance

The idea of a shared BRICS currency has raised concerns in the US, with Trump openly criticizing any attempt to challenge the dollar’s role in global trade.

In a recent social media post, he warned BRICS nations “not to come after the dollar,” vowing that any country seeking to undermine it would face economic consequences, including tariffs and strained diplomatic ties.

Despite this, BRICS members, including Brazil, Russia, India, China, and South Africa, are not aiming for a sudden shift but rather a gradual move toward trading in local currencies.

This strategy aligns with their long-term goal of reducing dependency on Western financial systems without directly confronting the dollar’s dominance.

A shift in focus: more local currencies, no common currency

At least four senior Brazilian government officials, speaking anonymously to news agency Reuters, clarified that the BRICS bloc is prioritizing financial reforms that allow cross-border transactions in local currencies rather than creating a new unified currency.

“This is not about replacing the dollar,” one source stated. “The goal is to make trade more efficient and reduce unnecessary friction.”

The shift comes amid discussions on integrating blockchain technology to streamline payments and lower transaction costs within BRICS economies.

While a shared currency remains a distant possibility, innovations in financial infrastructure are moving forward.

Brazilian President Luiz Inácio Lula da Silva has repeatedly emphasized that BRICS nations have the right to explore new trading mechanisms that do not rely solely on the US dollar.

However, he has downplayed the idea of an imminent common currency, preferring instead to focus on practical financial innovations.

“We have a right to talk about ways of trading that don’t leave us full of dollars,” Lula recently stated, signaling a pragmatic approach to economic diversification.

Under Brazil’s BRICS presidency, the country’s Finance Ministry and central bank recently convened to discuss cross-border payment solutions aimed at modernizing financial transactions within the bloc.

These initiatives seek to align with international standards, including those set by the Bank for International Settlements (BIS).

While BRICS is not launching a common currency anytime soon, its members are actively exploring ways to enhance trade flexibility.

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President Donald Trump on Thursday ordered his advisers to determine new tariff levels for all US trading partners, a sweeping move that threatens to upend the global trading system and set off intense negotiations worldwide.

The memorandum, signed Thursday, instructs officials to account for various trade barriers imposed by foreign countries, including tariffs, taxes, subsidies, and currency policies.

The move underscores the president’s long-standing grievance that the United States is being taken advantage of in global trade.

Speaking from the Oval Office, Trump said the goal was to bring manufacturing jobs back to the US

“If you build your product in the United States, there are no tariffs,” he said.

Commerce Secretary nominee Howard Lutnick and trade representative nominee Jamieson Greer, along with other advisers, have been tasked with quickly devising the new tariff structure.

A White House official, speaking on condition of anonymity, said the administration expects the plan to be finalized soon, The New York Times reported.

A break from decades of trade policy

For decades, the US has determined its tariffs through negotiations at international trade bodies such as the World Trade Organization (WTO).

The new approach—likely to result in higher tariffs—would represent a unilateral shift away from that framework, granting Washington sole discretion in setting levies.

Trump’s latest action follows his recent imposition of 25% tariffs on steel and aluminum imports, part of a broader push to counter what he sees as unfair foreign trade practices.

On Monday, he described those tariffs as “the first of many.”

The new tariffs could have broad economic consequences, potentially leading to retaliatory measures from key US trading partners.

The administration, however, has signalled that other countries will have the opportunity to negotiate tariff levels.

European Union, Japan, and India likely targets

While nearly every country would be affected, Trump’s trade team has singled out the European Union, Japan, and India as likely targets.

The White House has repeatedly criticized Europe’s value-added tax (VAT), arguing that it places an unfair burden on US exporters.

Peter Navarro, the president’s senior trade adviser, called the European VAT system a “poster child” for unfair trade, citing Germany’s strong auto exports to the US while importing far fewer American cars.

“President Trump is no longer willing to tolerate that,” Navarro said.

“The Trump fair and reciprocal plan will put a swift end to such exploitation of American workers.”

The US remains one of the few developed nations without a value-added tax, which European nations apply at an average rate of 22%.

Trump’s plan aims to counterbalance these costs through new tariffs.

A potential trade war on multiple fronts

Trump’s proposal marks a stark departure from past US trade policy, which has generally sought to lower international trade barriers.

By matching tariffs to those imposed by foreign nations, the US risks escalating disputes with allies and economic rivals alike.

The administration has also floated a broader “universal” tariff to reduce the US trade deficit, though no final decision has been made.

Under the new plan, tariffs could be justified using several legal authorities, including Section 232 for national security concerns and Section 301 for unfair trading practices.

In recent weeks, Trump’s aggressive tariff policies have already rattled global markets.

The US recently imposed a 10 percent tariff on all Chinese imports and came close to implementing sweeping levies on Canada and Mexico before agreeing to a temporary 30-day delay.

While Trump has framed the new tariffs as a tool to rebalance trade, they also serve as leverage for pressuring countries into granting American companies better access to foreign markets.

Whether this strategy leads to more favorable trade terms or provokes a prolonged global trade war remains uncertain.

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The USD/JPY exchange rate has retreated in the past few days as the market focuses on the next actions by the Federal Reserve and Bank of Japan (BoJ). It retreated to a low of 152.45 on Thursday, down from this month’s high of 154.82. So, what next for the Japanese yen vs US dollar?

Bank of Japan interest rate hikes

The Japanese yen has gained against the US dollar because of the ongoing divergence between the Federal Reserve and the Bank of Japan. 

The BoJ has embarked on a rate hike cycle to combat the relatively high inflation numbers. Recent data shows that the headline Consumer Price Index (CPI) rose from 2.9% in November to 3.6% in December, the highest level since late 2022. It has risen steadily from last year’s low of 2.5%.

Economists expect Japan’s inflation to remain higher for a while, fueled by government stimulus and wage growth. A recent report showed that Japan’s wage growth rose by 4.8% YoY, as base earnings increased by 2.5% and overtime pay by 1.4%.

Higher wage growth often leads to more inflation because it increases consumer spending or demand. Therefore, with Japan’s inflation higher than that of the United States, the BoJ is likely to maintain its hawkish posture.

It has moved from negative interest rates to 0.5%, and Kazuo Ueda, the BoJ governor, sees the bank having more room to hike. Interest rate hikes help to reduce inflation by making access to capital more difficult.

Federal Reserve to be more hawkish

The USD/JPY exchange rate retreated after the US published strong consumer inflation data on Wednesday.

According to the Bureau of Labor Statistics (BLS), the headline CPI rose from 2.9% to 3.0% in January. Core inflation, excluding volatile food and energy products, rose from 3.2% to 3.3%.

Many sectors of the US economy like insurance and housing are getting more expensive, especially because of the recent wildfires in Los Angeles.

US inflation will worsen this year because of Trump’s policy on tariffs. Trump has announced a 25% tariff on steel and aluminum, which will hit many products like vehicles and construction.

Trump has also announced more tariffs on the most important trading partners like Mexico, Canada, and China. 

His goal is to help reduce the US deficit by making it more expensive for manufacturers to import. He expects that many of them will instead opt to set plants in the US, a strategy that many analysts anticipate to fail.

Therefore, the Federal Reserve will likely hold interest rates steady in the next few months. Some analysts expect it to avoid cutting rates this year, while others expect it to hike rates. In an statement to Invezz, an analyst from ING said:

“The Fed is in a fix, with the US staring at stagflation, a period characterized by high inflation and weak economic growth. Its most likely action will be to hold rates for longer, since cutting will make the inflation scenario worse. Hiking could lead to a slower economic recovery.”

USD/JPY technical analysis

The daily chart shows that the USD to JPY exchange rate has retreated in the past few days. It has moved above the lower side of the rising broadening wedge and is now at the 61.8% Fibonacci Retracement level. 

The pair has moved slightly below the 50-day Exponential Moving Average (EMA) and the Ichimoku kinko hyo indicator. Therefore, the USD/JPY price will likely resume the downward trend because of the BoJ’s hawkish posture and the fact that it has formed a broadening wedge. A breakdown may see it fall to the ultimate S/R pivot point at 150.

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India and the US are charting an ambitious course to more than double their bilateral trade to $500 billion by 2030, a move that could reshape economic ties between the world’s largest democracy and its biggest economy.

Indian Prime Minister Narendra Modi and US President Donald Trump outlined this vision at a joint press conference in Washington, emphasising a shift toward strategic partnerships in defence, technology, and energy.

The announcement comes as both nations recalibrate their trade policies amid global economic realignments.

The US is seeking to counterbalance China’s economic influence, while India is reducing its reliance on traditional defence suppliers like Russia.

The partnership extends beyond trade to joint initiatives in artificial intelligence (AI), semiconductor production, and critical minerals—sectors that are crucial for supply chain resilience.

Tariffs and trade imbalances

While the target of $500 billion in trade signals deeper engagement, both sides face hurdles in resolving tariff disputes.

India’s average tariff rate on nations with most-favoured-nation (MFN) status stands at 17%, compared to 3.3% in the US.

This disparity has long been a sticking point in trade negotiations.

Trump has reinforced his stance on “reciprocal tariffs,” advocating for equivalent levies on imports from India.

The US had previously withdrawn India’s preferential trade status under the Generalized System of Preferences (GSP), citing unfair market access.

Modi, however, pointed to recent tariff reductions on select imports as a step toward fairer trade, expressing optimism about concluding a new trade agreement soon.

Despite differences, the US remains India’s second-largest trading partner, with total goods trade estimated at $129 billion in 2024.

India’s trade surplus with the US stood at $45.7 billion last year, reflecting its strong export-driven growth.

Defence cooperation accelerates with F-35 deal

A major shift in US-India relations is taking place in defence, as India diversifies its military procurement away from Russia.

Trump announced an increase in military sales to India, including plans to eventually provide F-35 fighter jets.

This marks a significant move in India’s defence strategy, as the country remains one of the world’s largest importers of military equipment.

India’s deepening defence ties with the US align with Washington’s broader strategy of strengthening alliances in the Indo-Pacific to counterbalance China.

The US is already a key supplier of advanced defence systems to India, and the inclusion of F-35s would further solidify this relationship.

Strategic investments in AI and semiconductors

Beyond trade and defence, India and the US are strengthening cooperation in emerging technologies.

Both countries have committed to bolstering AI development and semiconductor manufacturing, aiming to create resilient supply chains.

These efforts are particularly significant as global chip shortages highlight the risks of overdependence on a few production hubs.

With AI and semiconductor industries driving the next wave of economic growth, India is positioning itself as a critical player in the global tech supply chain.

The US, in turn, is looking to diversify its semiconductor manufacturing base and reduce reliance on China.

These collaborations could pave the way for joint research and development initiatives, attracting significant investment from American tech firms into India’s digital economy.

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India’s stock market has suffered its steepest decline in over a year, with total market capitalisation slipping below $4 trillion for the first time since December 2023.

A combination of a weakening rupee, foreign capital flight, and stretched valuations has triggered a selloff that wiped out over $1 trillion in equity value.

The country’s benchmark indices, Sensex and Nifty, have declined 2.6 percent so far this year, while broader indices have faced an even sharper downturn.

The BSE MidCap index has tumbled more than 12 percent, and the SmallCap index has lost over 15 percent, signalling deeper concerns about market breadth.

Foreign institutional investors have pulled more than $10 billion from Indian equities in 2025, raising fears about the sustainability of India’s bull run.

India lags behind global markets

India’s 18.33 percent decline in total market capitalisation is the sharpest among global markets in 2025.

Zimbabwe follows closely with an 18.3 percent drop, while Iceland ranks third with an 18 percent decline, according to Bloomberg data.

Major global indices have largely outperformed India. The US, which remains the world’s largest stock market, has recorded a 3 percent increase in market capitalisation this year.

China and Japan have posted gains of 2.2 percent each, while markets in Hong Kong, Canada, the UK, and France have registered increases of 1.2 percent, 7.2 percent, 7.1 percent, and 9.9 percent, respectively.

India’s market struggles come amid concerns over economic growth, earnings uncertainty, and a volatile political landscape.

The Indian rupee has weakened by nearly 1.5 percent against the US dollar this year, making it the second-worst-performing currency in Asia after the Indonesian rupiah.

This depreciation has made Indian assets less attractive to foreign investors, further exacerbating the selloff.

Mid and small caps hit hardest

While India’s stock market had previously been a magnet for investors seeking high-growth opportunities, concerns over stretched valuations are now weighing on sentiment.

At the IFA Galaxy conference, ICICI Pru AMC’s CIO, S Naren, warned against systematic investment plans (SIPs) in mid- and small-cap funds, citing high valuations and market volatility.

His comments sparked a broader discussion among market participants about whether India’s equity market remains an attractive bet for long-term investors.

Notably, renowned valuation expert Aswath Damodaran has also raised concerns about India’s expensive market.

Despite India’s strong GDP growth, he has pointed out that its equities remain among the most overvalued globally.

Meanwhile, China’s Shanghai Composite has outperformed the Sensex, further fuelling debate about whether India’s premium valuations are justified.

Global risks pressure equities

Beyond domestic factors, global economic uncertainties are also contributing to India’s market downturn.

The possibility of a tariff war under a second Trump administration has created additional nervousness among investors.

With India being a major exporter of services and goods to the US, any shift in trade policy could have a significant impact on corporate earnings.

Bloomberg’s methodology for calculating market capitalisation excludes ETFs and ADRs, focusing only on actively traded primary securities on exchanges.

This approach aims to prevent double counting, though it results in lower aggregate values compared to other sources.

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