The US Dollar (USD) is tracking higher. Headlines indicating that Trump might cite a national economic emergency as the justification for a new round of broadly applied tariffs is driving the USD higher in early trade, Scotiabank’s Chief FX Strategist Shaun Osborne notes.
Trump mulls ‘emergency’ basis for broad tariffs
“Stocks weakened on the headline, as did bonds—with Gilts underperforming. Rising US yields after yesterday’s US data round (highest ISM Services prices in two years or so and the strongest JOLTS report in 6 months) extends the recent pattern of firmer term rates and cautious expectations for additional Fed easing through the year ahead—less than 50bps of easing is now expected over the next 12 months, swaps suggest.”
“Rising US rates may not be as powerful a support fort the USD as they have been in the past few months. That’s because 1) rates are rising elsewhere, keeping spreads stable or even driving some narrowing in differentials and 2) to some extent, rising US term rates reflect a rising term premium— additional yield investors are demanding for the risk of holding US Treasury debt.”
“That may reflect investor concerns about the risk of a loosening fiscal policy as president-elect Trump’s term is about to start. Markets are long USDs, the DXY remains strongly overvalued and we continue to see the USD closely track its post-2016 election performance when it tumbled quite sharply in January of 2017. Despite the USD’s advance today, it’s not entirely clear that gains are sustainable in the longer run.”
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