USD firmer but tariff, fiscal uncertainties persist – Scotiabank

Tariffs were off Tuesday night and were back on again, at least for now, Thursday afternoon after a Federal Appeals Court allowed the president’s tariff plans to remain in place pending further rulings, Scotiabank's Chief FX Strategist Shaun Osborne notes.

USD firms modestly but investors fret over trade

"Markets shrugged off the developments, with an appeal from the administration expected—though perhaps not that quickly. Tariff uncertainty continues and while markets were unfazed by the news, the erratic developments in tariff policy means uncertainty for business remains particularly acute and will surely become more apparent in US hard data soon. The USD has advanced a little in overnight trade but concerns that the USD’s prospects are being damaged by the administration’s tariff and fiscal policies are rising while the erosion of free trade and questions over the Fed’s independence are adding to negative USD sentiment."

"A new concern for investors that has emerged this week is a provision in President Trump’s tax bill that would increase taxes on passive income for individuals and investors based in countries where tax policies on digital services are deemed 'discriminatory'. The measure could represent another headwind for foreign capital investment flows into the US and affect the USD31tn already invested in US assets by foreigners. Needless to say, reduced capital inflows or outflows even from US asset markets as a result of this provision could affect the USD longer run performance."

"Uncertainty over the tax may limit the USD’s near-term potential to stabilize or improve. DXY trend line resistance looks solid around 100.25 which may be the ceiling for any gains in the short run. There are a number of US data reports this morning, including Personal Income and Spending plus PCE data, Wholesale Inventories, the Chicago PMI and (final) U. Michigan Sentiment data. China releases PMI data this evening."