Recent imposition of a 104% tariff increase on Chinese goods by the United States has triggered a shift away from the US dollar, despite its recent gains. This dollar deleveraging has disproportionately benefited European currencies, potentially due to the perception that the EU’s measured response to US tariffs increases the likelihood of a future trade agreement. Current risk assessments suggest a downward trajectory for the DXY index.
The dollar’s vulnerability to the new tariffs stems from market concerns that the absence of readily available substitutes for certain Chinese products will exacerbate inflationary and recessionary pressures within the US economy. Concurrently, the impact of additional tariffs on Chinese exporters is diminishing.
While the US administration has initiated trade negotiations with other key partners, such as South Korea, the inherent complexities and protracted timelines associated with comprehensive trade agreements remain a significant factor. The relative performance of European versus US equities will be closely monitored.
