USD: Damage has been done – ING
The clean take-away from the pause in the worst of the tariffs was a re-assessment of global trade prospects on the view that perhaps tariffs were more transactional after all, and US equity losses are indeed proving a brake on the President's desires to rewire the global trading systems, ING’s FX analyst Chris Turner notes.
Tariff impact could weigh on dollar outlook
"The big winners yesterday in G10 were the commodity currencies – especially those with an Asian link such as the Australian and New Zealand dollar. The underperformers were the previously favoured defensive yen and Swiss franc. In the EM space, Latam gains stood out – the region having previously been hit on the big falls in industrial metals and energy prices."
"While US tech hardware and retailers helped drive a 9% rally in the S&P 500, the DXY trade-weighted index is only 1% off its recent lows. Perhaps one stand-out is USD/JPY, which over the last couple of years has typically been trading in a 150-155 range when US 10-year Treasury yields are up at 4.25/30% as they are today. The fact that USD/JPY is still trading on a 146 handle suggests this flip-flopping of policy is now demanding a higher risk premium of US asset markets. Keep an eye on the US sovereign five-year CDS, which has risen to levels last seen in late 2023."
"In theory, the dollar could face some upside risks from CPI today, but we favour DXY continuing to trade in a volatile 102.00-103.50 range. And it could come lower again over the coming weeks if it looks like the reciprocal tariff shock has done some damage to hard data in the US consumer and business space."
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FXStreet Insights Team
FXStreet
The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.
