Welcome to Liberation Day. Tariffs are front and center for markets ahead of this afternoon’s announcement from the White House, due around 4pm from the Rose Garden, Scotiabank’s Chief FX Strategist Shaun Osborne notes.
USD slips as markets wate for tariff announcement
“Those tariffs become effective ‘immediately’, the White House said yesterday. It remains to be seen exactly what comes today—all indications suggest tariff policy was still being put together at the 11th hour—but broadly applied, 20% tariffs seem very possible, if not likely. Recall that 25% auto tariffs take effect tomorrow. Hefty tariffs have negative implications for the US economy—slower growth and higher prices across the economy and a likely push for ‘operational efficiencies’ among businesses.”
“Today’s tariffs need to come in much lighter than 20% and with exemptions to ‘surprise’ markets positively and lift risk appetite. It’s not obvious that the Trump administration can or will go that route, however. High beta FX and risk assets are prone to weakness on tariff news but upside potential for the USD is limited—given growth risks and eroding US ‘exceptionalism’.”
“Broader USD sentiment, reflected by the declining premium for calls over similar delta puts is the softest since September, just before the dollar started to rally significantly. The DXY is softer today but movement among the major currencies is limited as investors are generally sidelined ahead of the tariff announcement. DXY losses will extend below technical support at 103.90. Stocks, bonds and crude are softer while gold is firmer, below yesterday’s peak.”