Dollar Correction – Here to Stay?
Yesterday marked President’s Day in the United States of America. The bank holiday and the lighter trading volumes that were observed did not lead to any significant volatility. Instead, lighter volumes allowed recent ranges in USD to solidify. Ahead of the bank holiday and into the end of last week the Dollar had been losing ground across the board. The conclusion that the President’s barking on tariffs might be greater than the bite the White House ultimately delivers was no small influence.
USD weakness has been readily observed throughout the market but no more so than in USDJPY. As a result of a constructive growth backdrop in Japan and a rate hike last month, the Yen is exposing USD weakness. Despite constructive domestic growth in Japan, an emerging faltering in US economic hard and soft data is exposing cracks in the global growth narrative. This has proved to be positive for the risk-correlated Japanese currency.
Ultimately, the threat of tariffs come the second quarter of 2025 may be greater than ever. As part of this administration’s ‘American First’ trade agenda the department of commerce and key officials will be required to produce a report on those nations who have unfair terms of trade with the USA. Based upon this review, the White House will take its next steps on tariffs. The weaker US Dollar that we have seen on a spot basis is as result of the fact tariffs and growth are less of a threat for now. Despite its recent outperformance, JPY may not escape the clutches of tariffs with Japanese exports responsible for more than 5% of the deficit in the US.
Discussion and Analysis by Charles Porter
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