‘Transition problems’ with US Tariffs continue. The US Dollar (USD) is getting trashed. A hugely volatile week for financial markets is ending with another significant fall in the USD, softer US Treasurys and still fragile risk appetite amid China’s tit-for-tat response to the hike in US tariffs, Scotiabank’s Chief FX Strategist Shaun Osborne notes.
USD slumps again as tariff worries persist
“China raised tariffs on US goods to 125% as of April 12th but said it would not respond to any further US moves. Havens—not US Treasurys—are bid up again; the CHF and JPY, plus the EUR, are outperforming while gold is trading at a new cycle high. High beta FX is underperforming today (and over the week), with the MXN at the bottom of the intraday performance table today. “Markets are protesting US policy and it is not helpful that US officials are downplaying this week’s market swings. Financial markets can have a disciplining effect, as former UK PM Truss discovered in 2022 when the pound, Gilts and UK equities were falling in unison. That has been happening in the US this week and it is a clear signal that markets anticipate negative consequences from the US’ pursuit of aggressive tariffs on its trade partners and are dumping US assets as a result. The 90-day reprieve won’t help.”
“It just prolongs the uncertainty and increases the risk of a negative economic outcome. A tariff off-ramp must be found quickly or the USD will continue to fall. The Dollar Index (DXY) has reached the 99 target I have been referring to for a while but the risk of a further, significant fall is rising. Unless that tariff off-ramp can be located quickly, the USD could fall another 5-10%. Markets will look to minor gains (USD shortcovering into the weekend perhaps) as a selling opportunity.”