USD softer as there are still major challenges – Scotiabank

So the US paused reciprocal tariff action for 90 days on non-retaliating countries but maintained a base line 10% tariff just hours after imposing aggressive levies on its major trading partners. China gets whacked with 125% tariffs though, Scotiabank's Chief FX Strategist Shaun Osborne notes.

USD softens broadly as there are still major challenges

"This had nothing to do with heightened volatility in markets. It was all part of the plan and rather reflects the lengthy line up of countries wanting to negotiate tariffs, discussions in which the president wants to be 'personally involved', according to the WH press secretary. The art of the deal. This is all nonsense, of course. There can be little doubt that the volatility in equities and fixed income (especially) played a role."

"Markets surged in response to the pause news but confidence in US policymaking has been severely dented and markets will remain vulnerable to trade-related headlines while the US and China continue to slug it out. Moreover, US tariffs are still higher than they were and, by some estimates, the aggregate effective trade-weighted tariff remains around 25% after yesterday’s moves and more (copper, pharma) tariffs might still be coming. After weeks of uncertainty which have stalled hiring and investment, global growth prospects have softened. Markets can breathe a sigh of relief but there are still major challenges here."

"That’s reflected in price action so far today. Overseas stocks have strengthened on the coattails of yesterday’s US market rebound but US equity futures are down sharply again. Crude oil continues to slide on growth worries while bonds are mostly firmer (ex Bunds). The USD is weaker again, with the JPY and CHF outperforming and gold is firmly bid. Near-term risks remain tilted towards the DXY dipping back to the 99/100 area, I believe."