Global risk sentiment continued to sour yesterday as President Trump announced he’d double tariffs on Canadian steel and aluminum to 50%, and later pulled the threat as Ontario suspended a 25% surcharge on electricity exports. Markets have been looking for some reprieve from the tariff story, but there are very few signs that stock instability can press Trump to scale back protectionism noise just yet. US global tariffs on steel and aluminum took effect today without exemptions, ING’s FX analyst Francesco Pesole notes.
The tide can turn pretty rapidly for the USD
“The US Dollar (USD) ended the day lower again yesterday but started to rebound overnight. Our view is that with US tariffs being rolled out, the greenback has room to recover. The reasoning is that if data fails to endorse market pessimism on the US in the coming weeks, the tide can turn pretty rapidly for the dollar. The whole premise of the current bearish narrative is that US tariffs are harming a slowing US economy, but recessionary calls in the recent past have often been misplaced when it comes to the US.”
“Incidentally, the inflation story is yet to improve convincingly enough for the Fed to cut rates again. Today’s February CPI release can trigger an uptick in the dollar should our call for 0.3% core CPI MoM print prove correct. That is also the consensus view, but the dollar is embedding quite a lot of negatives and should be asymmetrically more sensitive to hawkish news. We have a bullish bias on USD today.”
“We have also seen important political developments inside and outside the US. On the latter, Ukraine agreed to a 30-day ceasefire deal brokered by the US. That now needs to be approved by Russia. Domestically, the US House passed legislation to avert a government shutdown on Saturday. A few votes from moderate Democrats are needed to secure Senate approval, and markets are not ready to price the shutdown risk out just yet.”
