UBS On-Air: Paul Donovan Daily Audio 'Tariff affordability'
At a Glance
Lead — The desk emphasizes the potential implications of the 15% tariff proposed by the U.S. administration on importers, noted by Treasury Secretary Besant, and how this impacts inflation perceptions in a U.S. context. According to the analysis, while this tariff may not substantially raise inflation, it influences affordability narratives across households. Per the full note from UBS, this evolving tariff landscape aligns with existing market expectations and financial models, suggesting traders should be poised for further fluctuations in related currency pairs.
Key Takeaways
- 0115% tariff announcement could reinforce inflation perceptions.
- 02Consumer spending may be influenced by evolving affordability narratives.
- 03Potential discrepancies remain among firms on currency predictions.
- 04Observing gasoline price fluctuations could provide insight into market sentiment.
Full Analysis
What the desk is arguing
The desk is focusing on the U.S. Treasury Secretary's announcement regarding a potential increase in tariffs to 15%, reinforcing earlier statements by President Trump, which adds credibility to market expectations. Per the full note from UBS, while the tariffs might not heighten inflation dramatically, they are likely to affect public perception of inflation, leading to implications for consumer behavior and purchasing decisions.
As reported, despite a historical context of tariffs generally being shifted onto consumers, the current economic narrative around affordability could keep inflationary pressures lingering longer than anticipated. Key indicators such as gasoline prices have shown unusual volatility recently, adding to the discourse around inflation expectations among households.
Where it sits in our coverage
For the EUR/USD pair, our consensus target stands at 1.1700 with a range from 1.1200 to 1.2000. Notably, several firms have outlined their respective forecasts, including Deutsche Bank and Barclays, who target 1.1800 and 1.1700 for March 2026 respectively.
This desk's narrative largely aligns with the cross-firm consensus, though it leans towards the elevated expectations shared by deutschebank and bofa, both expressing views that correspond closely with the anticipated direction of inflation's narrative shift influenced by trade policy.
How other firms see it
Aligned firms like mufg and barclays share a similarly bullish outlook on the EUR/USD trajectory, forecasting around 1.1800 by March 2026. Conversely, firms like uob and anz appear to have a more cautious stance, capturing lower targets of 1.1536 and 1.1506 respectively, reflecting concerns over the effects of the tariff narrative on consumer pricing dynamics.
The affectation of U.S.-China trade negotiations intersects with this thesis; an escalating trade war could deter consumer spending and further sway market perceptions of inflation. Tracking movements in the USD/JPY may also provide additional insights on the overall market sentiment regarding tariffs and their economic fallout.
Market Implications
Traders should watch for movement around the EUR/USD level of 1.1700, particularly as public sentiment shifts due to tariff announcements. Positioning across related currency pairs, especially USD/JPY, could hint at broader market reactions to the U.S. import policy change.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bullish | 1.1800 |
ING | Neutral | 1.1700 |
Rabobank | Bullish | 1.1800 |
From the original
US Treasury Secretary Bessent signaled US importers could expect to pay a 15% tariff. US President Trump had mentioned this, but endorsement by an administration official adds credibility. The effect is not necessarily to raise inflation but—because tariff composition differs fro
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