Investors 'call Trump's bluff' on Asian tariff hikes as "sell America" trend loses merit
News that Washington intends to hike tariffs on Japan and South Korea to 25% effective on 1st August has been greeted in a relatively calm fashion by markets. The most noteworthy move has perhaps been the sell-off in the yen itself, but it's worth noting that the dollar actually rallied against most currencies on Tuesday, which is counterintuitive to the trend that we’ve seen since Liberation Day.
For now, investors are again calling Trump’s bluff and believe that at least partial compromises will be reached by the end of the month that sidesteps materially higher tariff rates among America's major trading partners (notably the EU). In tandem, there is the general sense that the slowdown in the US economy as a result of the tariffs will not be as severe as markets had anticipated.
Last week’s payrolls report did not match the gloomy estimates, and most signs suggest that a solid rebound in US growth is likely on the way once the second quarter GDP data is out (the Atlanta Fed estimate points to annualised expansion of around 3%).
This would suggest that while the “sell America” trend is not completely dead in the water, the arguments in favour of its merits have clearly waned, not least given just how stretched short dollar positions have become.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
