Liberation day aftershocks: The Dollar’s cracks are turning into fault lines

If the "Liberation Day" tariffs end up being the match that torched the dollar, it would make perfect sense. The sheer chaos around U.S. trade policy has shredded the dollar’s appeal as a go-to reserve asset. Big shops are already slashing forecasts and whispering that we’re not just in a tactical dollar pullback—we’re at the front end of a full-blown bear market.

Look at what’s changed since January: The biggest gut-punch to U.S. trade policy in a century. Germany throwing fiscal caution to the wind for the first time since reunification. A wholesale reassessment of American geopolitical leadership that hasn’t been seen since WWII. Add it all up, and the stage is set. The preconditions for a major dollar unwind aren't just falling into place—they’re already here.

From where I sit, the dollar is now on a glide path lower, grinding its way back toward real-world purchasing power parity against the euro—around 1.20-25. With EURUSD parked near 1.14, we’re still early innings if this really kicks into gear.

The kicker? Every other major asset class—stocks, bonds, commodities—has snapped back hard since the post-tariff panic. The dollar? Still dead money. That tells you all you need to know. The real selling isn’t coming from fast money—it’s sovereign foreign allocation bleeding out on dollar rallies, while FX players are still stubbornly trying to pick bottoms. They’re about to get steamrolled if the data keeps soft and rate cuts get jammed deeper into the tape.

The dollar's old fortress—the policy credibility, the growth premium, the cleanest dirty shirt status—it’s all cracked. The next downdraft could be violent once the rest of the street wakes up and stops trying to fade reality.

Right now, short USDJPY still looks like the cleanest way to ride this move. Japan’s sitting on a mountain of unhedged U.S. exposure, and repatriation flows are quietly ramping. If U.S. equities even twitch—or if the macro finally cracks for real—dollar-yen is going with it.

I loaded up short USDJPY as per my weekend call right out of the gate yesterday, but honestly, I didn’t expect the velocity we saw—ripping down toward 142 on nothing but 10s eyeing 4.20%. It didn’t make much sense at the time—there wasn’t a corresponding "risk-off" wave anywhere else. The real driver was Bessent’s pre-X-date bombshell: Treasury borrowing needs getting slashed way more than anyone had priced. The move was more about a technical vacuum than macro conviction. So I walked it in this morning around 142—took the money, no heroics.

I’ve been reviewing some of the JPM and Goldman views today, and the theme is pretty straightforward: the hard data—retail sales, jobs, and incomes—is still holding up, probably for another month or two. The real body blows to growth from the Liberation Tariff won’t land until mid-year. And obviously, the faster Trump cuts the tariff rates, the softer the hit will ultimately be,

But here’s the real read: there's a lot of ifs floating around the short-term narrative right now, and none of it screams 'buy dollar'. My gut? I'm looking to reload USD shorts. But whereas I was happy to front-run NFP yesterday, today I’m thinking I will sell a small clip later in London or New York, then wait. Let the number drop. Watch how the tape breathes. Then hit it.

FX is a twitchy beast right now—dollar conviction is paper thin. And if stocks roll over hard again? No hesitation. You slam USDJPY, and you ride the repatriation rip. The real pain trade in the dollar hasn’t even started yet.

The view

Markets have been laser-locked on the trade war soap opera, but two stealth flashpoints in Asia are about to rip open the complacency trade. Beijing’s South China Sea sabre-rattling and fresh India-Pakistan border skirmishes are heating up just as global port logjams choke critical shipping lanes. Worst possible timing? Absolutely. Think backed-up vessels, summer inventory squeezes, and empty shelves just when peak season orders should be rolling. That’s the kind of blindside that wrecks consumption without a Fed put in sight.

But here’s the kicker: today’s macro data is still flexing like nothing’s wrong. Initial jobless claims are hugging 220k — still decade-low territory — while retail sales and personal incomes grind higher under the radar. Sure, these are backward-looking reads. The tariff freight train hasn’t fully hit the real economy yet. But look around: traders aren’t even hedging. The S&P is floating just 10% below ATHs, consensus is still penciling in 10% earnings growth, and forward P/Es are riding a cushy 21-handle. Even the credit crack we saw a few weeks ago? Spreads widened, took a look around, and tightened right back up.

Some are screaming it’s a Wile E. Coyote setup — legs spinning in midair, gravity inevitable. I’m not there yet. Volatility’s pinned wide, sure, but asset valuations are screaming one thing loud and clear: the harshest tariff threats are getting priced out. Carve-outs on electronics are already in the bag, autos just dodged a bullet, and it’s only a matter of time before the embargo-tier levies on China get walked back — whether through Beltway horse-trading, corporate lobbying, or outright political survival mode. Traders can smell it. The second those backdoor concessions hit the tape, this market will rip faces off.

On Main Street, it’s not panic—it’s recalibration. Consumers are playing defense, yes—pivoting to big-box, e-comm, club memberships—but they haven’t hit the bunker. Autos? People are fixing used cars instead of coughing up for tariff-loaded new ones. Credit growth has stalled, but it hasn’t cracked. Delinquencies are still stuck at the low end of the spectrum. Zoom out, and household balance sheets still have some padding left.

Bottom line? As long as growth data keeps grinding, commodities don’t spike, FX doesn’t dislocate, and no new tariff bombshell detonates, the risk-on regime stays sticky. But—and this is the big but—if one pillar buckles (gridlocked ports trigger real shortages, regional wars light up supply chains, or consumer credit stress punches through), the pain trade will flip so fast it’ll make last month’s volatility spike look like a warm-up