UBS Morning audio comment: They’re back
At a Glance
The desk notes that President Trump's latest tariff proposal could dampen inflationary pressures, contrasting with previous measures that had significant impacts on consumer prices. Per the full note from UBS, this round of tariffs might not exacerbate the existing affordability crisis as much due to exemptions on essential items like food, indicating a more strategic approach. With Federal Reserve Chair Powell signaling a shift away from explicit forward guidance, market volatility may increase, particularly as investors digest multi-faceted economic signals. Our view stays aligned with projections targeting a modest depreciation of the dollar against major currencies, as consumer sentiment adjusts to these evolving trade dynamics.
Key Takeaways
- 01Trump's proposed tariffs could have a muted inflation impact compared to previous measures.
- 02Key exemptions on food items suggest a strategic approach to minimize consumer backlash.
- 03The Federal Reserve's shift away from forward guidance could contribute to increased market volatility.
- 04Current consensus forecasts align on a weaker dollar against major currencies.
Full Analysis
What the desk is arguing
The desk posits that Trump's new tariff initiatives, while potentially inflationary, are less likely to provoke the same consumer backlash as seen previously. Per the full note from UBS, certain key items are exempt, suggesting an understanding within the administration of the need to minimize public discontent regarding inflation.
Profit margins previously expanded due to earlier tariffs being passed onto consumers. New tariffs, particularly if aimed at the same products, could be absorbed by businesses, dampening the direct inflationary impact. This nuanced approach is vital, especially in light of consumer perceptions surrounding price increases that might be attributed to tariffs.
Where it sits in our coverage
The consensus forecast for EUR/USD currently stands at 1.075, with a range spanning from 1.04 to 1.12. Key firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26) - citi: 1.12 (Mar26)
This narrative aligns with jpmorgan and citi forecasts on a weaker dollar, adjusting to Fed policy changes as they diverge from traditional forward guidance strategies. The desk calls for a dollar depreciation, potentially placing this outlook at the upper limit of the consensus range.
How other firms see it
Aligned firms such as jpmorgan and citi anticipate that economic conditions will necessitate a weaker dollar going forward. Conversely, bofa holds a contrary view, asserting that dollar strength may persist against the backdrop of ongoing geopolitical tensions and potential risk aversion among investors.
As we analyze these dynamics, the EUR/USD and USD/JPY currency pairs will be crucial to watch, given their sensitivity to tariff implications and central bank adjustments across the board.
Market Implications
Traders should focus on the EUR/USD exchange rate at the 1.075 level, monitoring for potential deviations as new tariff details emerge. Keep an eye on Powell's next statements, as they may significantly influence market sentiment and positioning.
From the original
US President Trump is proposing more tariffs. This round will probably have less of an inflation impact than last year’s tariffs. https://secure.ubs.com/campaign/r/?id=t60a071e0,14ff085a,28e5cdb5&campID=
Related speeches
4 itemsUBS On-Air: Paul Donovan Daily Audio 'Real slowdown risks'
The desk interprets recent comments from President Trump as undermining the independence of the Federal Reserve, suggesting that this external pressure may lead to broader market weakness and an economic slowdown, particularly since the slowdown is more risk-related than credit-cost motivated. Per the full note from UBS, Trump's push for lower interest rates could fuel inflationary pressures without improving consumer spending capabilities due to potential income erosion from tariffs. This signals a crucial shift in consumer and corporate behavior amidst increasing economic uncertainty.
UBS On-Air: Paul Donovan Daily Audio 'Let’s try some more!'
The desk believes President Trump's proposed expansion of trade taxes, particularly on pharmaceuticals and semiconductor chips, indicates a continued prioritization of protectionist policies that may further strain consumer sentiment in the U.S. While the immediate impact on currency pairs remains uncertain, the suggested shift away from auto tariffs suggests a nuanced approach to trade that may favor some sectors over others. Per the full note from UBS's Paul Donovan, these developments may have profound implications on U.S. inflation and economic growth rates, influencing the dollar's performance and trading strategies in FX. Additionally, there are no major economic data releases anticipated in the near term that might catalyze a swing in these policies, leaving markets susceptible to speculation.