Nail-biting anticipation surrounds the upcoming tariffs announcement, causing the dollar to remain subdued while Wall Street prepares for potential economic challenges. Goldman Sachs economists highlight the importance of key aspects in the announcement, including the list of countries affected, the average tariff rate, and the timeline for implementation. The WSJ Dollar Index sees a slight decline, hovering near the year's low at 99.50. The euro and yen gain modestly against the dollar, while the greenback strengthens slightly versus the Canadian dollar.
Asset manager GMO predicts that the dollar could substantially strengthen in the short term if universal tariffs are imposed by President Trump. However, the dollar's appreciation could be more modest if countries retaliate with measures that impact U.S. exports. Concerns about the impact of tariffs lead to a decline in the dollar indexes, reflecting fears of a potential economic slowdown in the U.S. Despite positive economic indicators released, such as strong labor and activity data, currency markets remain focused on trade policy uncertainties.
Rabobank experts warn that President Trump's protectionist policies could threaten the dollar's status as the world's reserve currency in the long term. European officials are reportedly reconsidering the reliance on the Federal Reserve for dollar liquidity in crises, which could prompt a shift away from using dollars for transactions. The Canadian dollar and Mexican peso edge lower ahead of Trump's trade policy announcement, with expectations of a universal levy on imports potentially affecting these currencies.
The U.K.'s fiscal headroom could be eroded by U.S. tariffs, impacting sterling's strength. Analysts suggest that the U.K. is somewhat shielded from the tariffs, but uncertainties remain about the potential economic implications. Market experts anticipate a possible recovery of the dollar if the Federal Reserve delays further rate cuts, although mixed economic data could complicate the decision-making process.
In the currency market, movements in currencies like the Canadian dollar and risk-sensitive currencies signal a level of complacency towards U.S. tariffs. With concerns about escalating trade tensions, market participants may be underestimating the potential impact of tariff actions. Sterling could outperform the euro as the U.K. is less exposed to U.S. tariffs compared to the EU, potentially leading to a short-term rise in the pound's value. The euro remains steady against the dollar as investors await Trump's tariff announcement, with buying interest supporting the euro below specific levels.
As markets await President Trump's tariff announcement, the dollar remains stable with a focus on the potential impacts on trade relations. Uncertainty surrounding tariff responses from other countries and future U.S. trade policies keeps market participants cautious and maintains volatility across assets.