UBS On-Air: Paul Donovan Daily Audio 'Trying to change perceptions'
At a Glance
Per UBS's State of the Union analysis, the defensive tone and domestic focus suggest Trump is sensitive to falling approval ratings, which could presage policy shifts on tariffs. The desk sees this as a signal for USD vulnerability if protectionism escalates. Consensus EUR/USD year-end targets average near 1.08, with a wide dispersion from 1.04 to 1.12. The lack of imminent high-impact data leaves the market to focus on administration rhetoric, with next week's ISM manufacturing print as the key near-term catalyst.
Key Takeaways
- 01Trump's domestic focus reflects approval concerns, elevating tariff risk.
- 02Euro-area consumer hard data diverges from soft surveys, underpinning EUR floor.
- 03German GDP revisions confirm consumer-led stability despite demographic headwinds.
- 04Calendar is light—focus shifts to administration signals and next week's ISM data.
Full Analysis
What the desk is arguing
UBS Chief Economist Paul Donovan argues that Trump's State of the Union was a defensive reset of the economic narrative, reacting to sliding approval numbers. Per the full note , this sensitivity raises the odds that the administration leans into tariff policy to shore up domestic support, a shift that would have clear FX implications.
The desk draws a contrast between consumer sentiment (GFK dropping) and actual consumption (data revised higher), suggesting hard data still supports the euro area. The German GDP revisions confirm a steady consumer backbone, even as the population drag remains structural. The alternative read—that the approval-linked policy risk is already priced—is implicitly rejected given the event's proximity to new tariff announcements.
Market Implications
Watch EUR/USD for a break above 1.0850 if tariff rhetoric escalates, targeting 1.10. The lack of near-term data puts a premium on C-suite comments from US Trade Representative and Treasury Secretary.
From the original
US President Trump’s State of the Union address defended the past year, seeking to reset the economic narrative of the past year. As such, it is not especially market relevant—although so much of a focus on the domestic economy (perhaps in response to recent approval rating numbe
Related speeches
4 itemsUBS On-Air: Paul Donovan Daily Audio 'The state of the world'
The desk's view highlights the potential market implications stemming from President Trump's State of the Union address, specifically regarding tariffs and Congressional support, as noted by UBS Chief Economist Paul Donovan. The emphasis is on whether written remarks will unveil new tariff threats, potentially impacting market sentiment more than casual comments. Notably, Trump’s approval ratings have declined, leading to likely resistance from Congressional Republicans regarding continued tariffs, which would create a mixed signal for investors, as reported by UBS. This interplay between political tone and economic reality could inform trading strategies if new policies emerge or fail to gain traction.
UBS On-Air: Paul Donovan Daily Audio 'A disturbance in the force'
Per the full note [source], UBS Chief Economist Paul Donovan argues the market should treat President Trump's 'little disturbance' comment as a commitment to visible consumer tariffs, despite Commerce Secretary Lutnick's signals of a potential retreat on Canada and Mexico levies. The desk emphasizes that uncertainty from trade policy is already weighing on investment and savings decisions, and that visible taxes (e.g., on avocados or propane) carry more behavioral impact than opaque ones like aluminum tariffs. With no internal coverage data on specific currency pairs, the immediate focus remains on the USD's vulnerability to tariff news flow, though no high-impact calendar events are pending in the next 30 days.