Top of the Morning: POTUS 47 - Latest on US trade policy & government funding talks
At a Glance
The desk contends that the ongoing legal battles surrounding U.S. trade tariffs may lead to sustained pressure on the dollar, as domestic uncertainty could weaken investor sentiment. Per the full note source, the recent appeals court ruling has upheld the illegality of certain tariffs originally imposed under the Trump administration, with the case now heading to the Supreme Court for an expedited decision. This ruling adds complexity to the trade landscape, which may affect dollar pairs amid mixed market reactions. Market participants should also be attuned to any developments in government funding, as a potential shutdown could exacerbate uncertainties and impact overall market sentiment.
Key Takeaways
- 01Recent appeals court ruling may keep tariffs in place, complicating U.S. trade policy.
- 02Legal uncertainties around tariffs could lead to a bearish outlook for the dollar.
- 03Government funding negotiations add another layer of risk regarding U.S. economic stability.
- 04Market participants should brace for heightened volatility in dollar pairs.
Full Analysis
What the desk is arguing
The desk believes that the prolonged legal deliberations over U.S. trade tariffs will likely contribute to a weaker dollar in the short term. This follows the affirmation of earlier rulings that deemed specific tariffs unlawful, projecting a landscape filled with potential volatility as the appeals process continues. Per the full note source, the case is set for an expedited Supreme Court review, which may provide a decisive verdict before year-end.
With tariffs remaining in place amid this ongoing legal saga, U.S. trade policy's instability could foster a cautious approach among investors, leading to diminished appetite for dollar-denominated assets. The tariff issue thus injects uncertainty into the currency markets, which can create pressures on pricing and positioning in the FX realm.
Where it sits in our coverage
Currently, our consensus target for the USD against the major currencies stands at 1.075, with a range of 1.04 to 1.12. Notably, we see support in targets from: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk's outlook for a weaker dollar appears to align with jpmorgan's bullish stance, while diverging from bofa, which anticipates a lower target. This positioning places our outlook towards the upper end of consensus estimates, suggesting the potential for rising volatility in dollar pairs.
How other firms see it
Firms like jpmorgan align with our view of a weaker dollar due to escalating trade tensions and uncertainty surrounding tariffs. Conversely, bofa takes a contrary stance, expecting a stronger dollar amid fiscal discipline.
Trader should monitor the USD/EUR trajectory, as further developments in the U.S. fiscal landscape might correlate closely with shifts in European monetary policy, particularly actions from the ECB in response to inflation data.
Market Implications
Investors should watch the USD/EUR levels closely, particularly how market sentiment shifts in the wake of any Supreme Court decisions or government funding resolutions. A key level to observe will be 1.075, as breaking below this could signal a more pronounced risk-off sentiment in FX markets.
From the original
Kurt rejoins in studio to share the latest on US trade policy (and potential paths forward) following the recent US federal appeals court ruling. We also touch on government funding negotiations, including a look at where roadblocks exist, and the prospects for a shutdown by the
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