In the past week, U.S. President Donald Trump has continued to ramp up tariff pressure on trade partners, but financial markets seem unfazed – reflecting skepticism that these threats will actually be carried out.

Tariff Ultimatum: Deadline August 1

The Trump administration recently sent warning letters to 14 countries about the possibility of higher tariffs on goods exported to the U.S., starting August 1. This marks the end of a 90-day "suspension" period for the new tariffs, which was extended until July 9.

In a strong statement on Truth Social on Tuesday, Trump asserted that he would not extend this deadline and that the new tax rates would definitely take effect on August 1. However, the market's reaction tells a different story.

T.A.C.O – "Trump Always Chickens Out"?

Investors seem to still believe in the rule "Trump Always Chickens Out" (TACO), a humorous term that accurately reflects the common sentiment on Wall Street. The clearest evidence is that expectations about the U.S. Federal Reserve's interest rates remain stable despite threats of tariffs.

Specifically, according to CME's FedWatch tool, the market still expects two 25 basis point rate cuts this year, with the first one expected to occur in September. This sentiment has not changed since the hotter-than-expected jobs report released on Friday, indicating that investors do not believe tariff tensions will affect monetary policy in the short term.

The Contrast With March

Compared to March, when Trump's tariff threats caused panic in the markets and triggered a series of interest rate cuts starting in June, the sentiment now seems much more stable. It appears that traders have become accustomed to Trump's "negotiation by pressure" strategy and expect that ultimatums will again be postponed or lead to new agreements.

ForexLive also notes that a plausible scenario is that the August 1 deadline will be indefinitely postponed, paving the way for subsequent negotiations – something that has occurred many times in the past under Trump.

The Market Is Not Responding Strongly

The MOVE index – which measures expected volatility in the U.S. Treasury market – is still on a downward trend. Previously, during the period from February to April, concerns about trade and fiscal wars pushed this index from 86.00 to 139.00. However, currently, this index is in a calm zone – indicating the tranquility of the bond market.

U.S. stocks also did not react strongly. The S&P 500 index fell only 0.8% on Monday to 6,210 points before slightly recovering to 6,225 points the following day.

Bitcoin – an asset typically sensitive to economic instability – also showed no significant reaction. BTC prices remain around $105,000, according to data from CoinDesk. It is noteworthy that both the stock market and Bitcoin peaked in February and are in a corrective trend since the first wave of tariffs in March – early April.

USD Index Rebounds

The Dollar Index – which measures the strength of the greenback against a basket of major currencies – rose 0.55% to 97.60 on Monday, currently stabilizing around this level and breaking above the downtrend since the peak on February 3. This indicates that money is still flowing back to the USD as a safe asset, rather than into gold or Bitcoin.

Conclusion: The Market Believes in an "Old Scenario"

Despite Trump's increasingly tough tone and the timelines set, the financial markets seem not to believe that a full-blown trade war will actually occur. With precedent from the previous term, investors have reason to believe that this is a "bargaining tactic," not the beginning of a thorough tariff cycle.

What’s concerning is: Will Trump break this expectation on August 1 – or will he delay again, opening the next chapter for American-style trade negotiations?