UBS On-Air: Paul Donovan Daily Audio 'Welcome back uncertainty'
At a Glance
The desk interprets the recent commentary from UBS, emphasizing that increased trade policy uncertainty poses significant risks to currency valuations. The Supreme Court's ruling against certain IEEPA tariffs, while anticipated, sets a perplexing backdrop with President Trump's more sweeping universal tariffs, rising unexpectedly from 10% to 15%. Per the full note source, the absence of specific details about exemptions or the implications for revised trade agreements adds to the volatility that traders must navigate in the coming sessions.
Key Takeaways
- 01Increased trade policy uncertainty is leading to heightened FX market volatility.
- 02The unexpected rise of tariffs to 15% complicates trade negotiations with key partners.
- 03Market positioning may shift significantly as traders respond to evolving trade dynamics.
- 04The USD may see increased strength or weakness based on ongoing tariff developments.
Full Analysis
What the desk is arguing
The desk holds that the ongoing uncertainty surrounding US trade policy will likely lead to increased volatility in the FX markets. UBS highlighted that while some aspects of the recent tariff changes were expected, the sudden rise to a 15% universal tariff unsettles previously held assumptions about trade negotiations and their impact on currency dynamics.
Recent reports suggest that these tariffs could lead to a ripple effect, influencing currency pairs and positioning choices among traders. Industry analysts estimated that this uncertainty could contribute to potential shifts in USD sensitivity towards risk assets.
Where it sits in our coverage
Our consensus target for USD/EUR stands at 1.075, with a range between 1.04 and 1.12. Key firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This viewpoint aligns closely with jpmorgan, which sits near the upper bound of our established range, while bofa presents a more cautious stance, suggesting further depreciation of the USD if uncertainty lingers. The desk's positioning reflects a more bullish outlook compared to the broader consensus.
How other firms see it
Aligning with our view are firms like jpmorgan which recognize the potential for the USD to firm up short-term, whereas bofa takes a contrarian approach, indicating that the ongoing uncertainties may push USD lower.
Traders should monitor the USD/EUR pair closely, as fluctuations in trade policy will directly influence bilateral currency valuations in the context of broader economic indicators from the US and Europe.
Market Implications
Traders should watch for potential shifts in the USD/EUR towards the consensus target of 1.075. Frequent updates on tariff exemptions and their implications will be critical in shaping market sentiment, particularly as economic reports are released in the near term.
From the original
US trade policy uncertainty increased over the weekend. The Supreme Court ruling against IEEPA tariffs was not unexpected. US President Trump imposing a 10% universal tariff, then raising it to 15%, was less predictable. Details seem limited—will some goods be exempt? What about
Related speeches
4 itemsUBS On-Air: Paul Donovan Daily Audio 'Well….'
The desk interprets the recent commentary from UBS, highlighting the substantial tax increase announced by President Trump and its implications for the US economy. Per the full note from UBS, the administration's approach to tariffs appears arbitrary and may raise questions regarding its competence in handling trade relations. The concerns of a potential US recession loom should these trade taxes become permanent, as investors evaluate the administration's past willingness to retract such measures. Currently, the consensus around currency pairs remains uncertain amid the macroeconomic backdrop, with no high-impact economic events on the immediate horizon.
Top of the Morning: The week in review and preview
Per the UBS podcast [source], the initial market response to a U.S. Court of International Trade ruling blocking Trump tariff authority was muted, as a federal appeals court quickly paused the decision, underscoring the real-time uncertainty. The desk argues trade policy remains highly fluid, with rates and equities reacting to each twist. No specific currency pair is cited, so internal coverage is absent, and the calendar shows no high-impact events, leaving the desk focused on headline-driven volatility.
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