Scotiabank’s Chief FX Strategist, Shaun Osborne, observes that the U.S. dollar has broadly weakened following recent trade developments. This comes after the U.S. implemented substantial tariffs on key trading partners, including a 125% tariff on China, while simultaneously announcing a 90-day pause on reciprocal tariff actions for non-retaliating countries, maintaining a baseline 10% tariff.
The White House press secretary attributed these actions to a strategic plan involving presidential engagement in tariff negotiations. However, Osborne suggests that market volatility in equities and fixed income likely played a significant role in these decisions.
While markets initially responded positively to the pause announcement, confidence in U.S. policymaking has been significantly eroded. The market remains susceptible to trade-related news as the U.S. and China continue their trade dispute. Furthermore, despite the recent adjustments, U.S. tariffs remain elevated, with estimates suggesting an aggregate effective trade-weighted tariff of approximately 25% even after recent modifications. Additional tariffs on sectors such as copper and pharmaceuticals remain a possibility.
The weeks of uncertainty surrounding trade policies have negatively impacted global growth prospects, leading to stalled hiring and investment. Although markets may experience a temporary reprieve, significant challenges persist in the global economic landscape.
