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(Bloomberg) -- The Bank of Canada is expected to cut interest rates more deeply as US President Donald Trump’s tariff barrage sends world markets into a tailspin and data show the Canadian job market already taking damage.

Traders in overnight swaps see policymakers led by Tiff Macklem cutting the key policy rate by another 75 basis points this year, falling to 2% from the current 2.75%. Just last week, markets were pricing the so-called terminal rate at 2.25%.

The worst two-day market rout since March 2020 is hurting Canadians’ wealth, and growth prospects in the northern nation are getting hammered as analysts slash economic outlooks across the globe. Canada’s business and consumer confidence has already taken a major hit as the country was one of the first to face Trump’s tariff assaults. On Friday, Statistics Canada reported the country shed 62,000 full-time jobs in March, the most since 2021.

Traders in overnight swaps put the odds at about a coin flip for another rate cut at the central bank’s next decision on April 16, up from just over a third on Thursday.

At the same time, the trade war is likely to push up inflation, limiting the extent to which the Bank of Canada can cut borrowing costs to support the economy. Still, on Thursday, Prime Minister Mark Carney signaled his government’s retaliatory response is designed in part to prevent an escalation of conflict with the US. That has the potential to limit the price shock and give the central bank some additional cutting room.

“The likely inflation transmission from that response is much smaller than a full ‘dollar-for-dollar’ retaliation,” Dominique Lapointe, an economist with Manulife Financial Corp., wrote in a report to investors.

Carney on Thursday announced 25% tariffs on US vehicles that don’t comply with the US-Mexico-Canada Agreement, as well as on the American components of autos that are shipped under the trade deal. That mirrors Trump’s tariffs on Canadian autos, and adds to existing Canadian retaliatory levies on C$60 billion ($42.2 billion) in US products, including steel, aluminum, electronics and cosmetics.

“If we start slapping tariffs on the US, which will not be optimal for the Canadian economy, then you’ll limit the ability of the central bank to cut rates,” Stefane Marion, chief economist with National Bank, said in an interview.

“I know it’s an election campaign now, it might look good to look tough, but the reality, the structure of our economy is not set for retaliation against US tariffs, unfortunately.”

Trump’s “Liberation Day” on Wednesday, in which he hit countries around the world with so-called reciprocal tariffs, spared Canada any new levies — though Treasury Secretary Scott Bessent told Bloomberg Television he wasn’t sure why. On Friday, Carney said Canada “got the best of a series of bad deals.”

The US president’s tariff decisions helped push Canada’s currency to the highest level since December on Thursday — and while a significant depreciation in the loonie is still possible, its recent strength will limit the increase in import costs.

Still, Carney has said Canada still has further counter-tariffs it can deploy if Trump follows through on his threats to add import taxes to softwood lumber, pharmaceuticals, copper or other products.

Canada is America’s biggest single customer, buying about $350 billion of US-made goods last year. And the US is the buyer of most of Canada’s goods exports — it’s often repeated that when the US coughs, Canada gets a cold. Traders in overnight swaps also now expect the Federal Reserve to cut borrowing costs more deeply this year.

“Macklem clearly wants to pause to take stock and gain greater clarity on the growth and inflation impacts of the trade war,” Avery Shenfeld, chief economist with Canadian Imperial Bank of Commerce, wrote in a report to investors. He pointed to the bank governor’s most recent speech in which he stressed that tariff inflation will limit policymakers’ response.

“But if the downslide in global financial markets gathers too much steam, he might have to reconsider.”

--With assistance from Mathieu Dion.