USD: Could the USD come out stronger amid the tariff noise? – ING

Trump’s letters to trading partners are so far primarily affecting local markets, rather than the broader market. Yesterday’s surprise 50% tariff announcement on Brazil has triggered a major BRL selloff. Here, a main issue is that the tariff appears related to charges against former President Jair Bolsonaro, while the US holds a trade surplus with Brazil. The focus is now on whether any trade negotiations will include demands by the US related to Bolsonaro, which could prove a significant political hurdle and cause additional pressure on the BRL, ING's FX analyst Francesco Pesole notes.

USD ignores tariffs, eyes CPI next

"The US Dollar (USD) is slightly offered this morning, but remains largely a bystander amid tariff chaos. For now, we stick with our neutral near-term bias on the USD. The question is what needs to happen for the USD to take Trump’s tariff maneuvers seriously. Our perception is that the bar is high for now, but should get lower as we approach the 1 August deadline. If by then trade negotiations with large US partners aren't at an advanced stage, it will be harder to ignore the higher US tariff rate. The implications for the USD aren’t as straightforward though."

"We think the 10% average tariff rate is the bottom, and we could see it get to 20% from the current 14%. But how we get there matters hugely for the USD. A gradual implementation of sector-specific tariffs should do much less damage to the USD compared to sudden, 'Liberation Day'-style measures. The former may ultimately result in some inflationary effect that can keep the Fed cautious for longer – a USD positive. June meeting minutes released yesterday confirmed that the cautious/hawkish front remains dominant in the FOMC, with only Waller and Bowman having explicitly moved to the dovish side."

"Things can change a lot in the next three weeks, and our baseline call remains that the USD will show significantly reduced interest in tariff noise. Data remains a bigger driver, and the potential FX impact of next week’s CPI figures still looks much bigger than trade news. Jobless claims will be in focus today. Initial claims have come in lower than expected in the previous two weeks, but the whole of June saw upward surprises in continuing claims – a measure of the difficulty to re-enter the workforce."