Today’s gain on EUR/USD has extended to 1% after a WSJ article reported that there will not be any day one tariffs from the Trump administration.
The authors have seen a memo to be released by Trump that will direct the federal government to investigate and to remedy the US’ trade deficits and currency manipulation by other states, but will stop short of ordering the immediate implementation of tariff measures.
The dollar is incredibly sensitive to the tariff outlook right now, and the new administration is already setting a tone suggesting that the fast-moving, shock-and-awe trade policy that Trump had promised is likely to be more measured than the market had expected. And the market was pricing in a relatively benign picture in which tariff threats were first and foremost strong negotiating tools.
The US bond and equity markets are closed for today, but all else equal there is likely to be some extra Fed easing priced in for this year.
That said, none of this necessarily precludes heavy tariffs later down the line – he has four years to achieve his goals. But the probability of the worst-case, blanket tariff scenario has clearly diminished, and so has EUR/USD parity. This is the biggest clue yet that we could be peak dollar, although I would not get my hopes up just yet.
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