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President Trump’s unexpected halt to certain high tariff impositions has once again obscured any clear understanding of his strategic intentions. Prompted by an 8-week downturn that saw US equities decline by 20%, it now appears his tariffs might be more contingent and adaptable than previously thought.
Initial reactions in the foreign exchange market indicate a slow recovery for the US dollar. Its performance following the release of CPI data will be revealing.
USD: Impact Already Felt
The primary conclusion drawn from the temporary suspension of the most severe tariffs involves a reassessment of global trade prospects, suggesting tariffs may be more reactive. Losses in US equities are seemingly tempering the President’s ambitions to reshape global trade structures.
Commodity-linked currencies, especially those tied to Asia like the Australian and New Zealand dollar, were major beneficiaries. Yen and Swiss franc were weaker. Latam was strong with metal and energy prices gains.
Despite a 9% surge in the S&P 500 fueled by US tech hardware and retailers, the DXY trade-weighted index is only marginally above its recent lows. USD/JPY is trading at 146. The US five-year CDS has risen to levels last seen in late 2023.
The 90-day negotiation pause includes whether currency policy is under review. For today, focus turns to how the dollar reacts to another sticky CPI release.
