UBS On-Air: Paul Donovan Daily Audio 'Trade taxes and the US Treasury'
At a Glance
The desk interprets recent comments from US Treasury Secretary nominee Bessent, emphasizing a concerning misunderstanding of trade tax economics, especially regarding currency appreciation's role in offsetting tariffs. This misalignment highlights potential inflationary pressures which could impact the USD and its major pairs. According to the consensus targets, EUR/USD is trading at 1.1434 with a median forecast of 1.1750 for December 2026. Per the full note source, the market is left to navigate how these administration policies might influence currency valuations moving forward.
Key Takeaways
- 01Bessent's understanding of currency appreciation's impact on tariffs is questioned.
- 02The desk anticipates potential inflationary effects from proposed trade taxes.
- 03Current EUR/USD sits at 1.1434, against a December consensus of 1.1750.
- 04The market's interpretation of administration policies could lead to volatility in currency pairs.
Full Analysis
What the desk is arguing
The desk asserts that Bessent's views on trade tax implications may reflect a broader underestimation of economic realities, specifically that currency appreciation does not adequately cushion the inflationary impact of such taxes. Per the full note source, this could exacerbate inflation pressures, leading to potential volatility in USD-cross pairs.
The concern over rising prices due to trade taxes links back to the responses during Bessent's confirmation hearing, indicating a disconnect between theory and practical outcomes. The desk emphasizes that the ongoing market reaction may depend significantly on how the administration's trade policy evolves and influences economic indicators, notably inflation.
Where it sits in our coverage
Consensus sees EUR/USD currently at 1.1434. Forecast ranges for December 2026 stand at a median of 1.1750, with notable targets from firms such as ubs at 1.2000, deutschebank at 1.2500, and citi at 1.1300.
The desk's assessment is moderately bullish compared to the lower-end forecasts from citi and reflects an alignment closer to ubs's higher projection, suggesting a potentially robust euro against the dollar, especially if inflationary pressures from trade actions materialize as anticipated.
Market Implications
Investors should closely monitor the EUR/USD level at 1.1750 as potential inflation data and trade policies could impact this trajectory significantly. Also, positioning shifts in USD/JPY could reflect broader market reactions to ongoing trade discussions.
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-nominee Bessent is a more orthodox cabinet nominee. Yesterday’s confirmation hearings saw generally articulate answers. The responses on trade taxes were troubling. Bessent’s idea that an appreciating currency offsets tariffs is not supported by recent evide
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