US dollar confidence to remain an issue
At a Glance
The desk believes that ongoing uncertainties surrounding U.S. trade policies, particularly President Trump's tariffs, will continue to undermine confidence in the U.S. dollar. Per the full note from MUFG EMEA, these legal ambiguities regarding reciprocal tariffs are raising concerns about the attractiveness of U.S. assets. As the market anticipates the upcoming ECB meeting, there is a growing sentiment that the euro may strengthen its position as a global reserve currency, further challenging the dollar's dominance.
Key Takeaways
Full Analysis
What the desk is arguing
MUFG analysts contend that growing legal uncertainties around reciprocal tariffs are undermining confidence in US assets and the dollar. The debate over President Trump's trade policies is creating a negative feedback loop for the greenback.
Looking ahead, the ECB meeting next week is seen as a potential catalyst for euro strength. There is a rising sentiment in Europe that the euro could strengthen its role as a global reserve currency amid doubts about the dollar.
The desk implicitly rejects the notion that tariff uncertainty will be resolved quickly or that the dollar will retain its safe-haven appeal. Instead, they warn that protracted legal battles and policy unpredictability may lead to a structural shift away from the dollar.
Where it sits in our coverage
Our internal consensus targets EUR/USD at 1.075 by year-end with a firm spread of 1.04-1.12, a moderately bullish euro view that aligns with MUFG's thesis of dollar weakness. The view that the euro could gain reserve currency status goes beyond our near-term forecasts but remains consistent with a bearish USD outlook.
Specific firm targets from our coverage include: - Barclays target 1.08 (Mar-26) - JPMorgan target 1.10 (Mar-26) - Goldman Sachs target 1.05 (Mar-26)
How other firms see it
Several firms share a similar bearish USD view. Barclays and JPMorgan are aligned with MUFG, targeting EUR/USD above 1.08 and 1.10 respectively.
However, some firms are contrary. Goldman Sachs is more cautious with a 1.05 target, and BofA leans even lower at 1.04, suggesting that the dollar's decline may be limited. This divergence highlights the debate over whether tariff uncertainty will truly erode dollar hegemony.
Market Implications
Bearish for USD across G10, particularly against EUR. Potential for EUR/USD to break above 1.10 if ECB signals normalization. EM currencies may also strengthen as dollar sentiment weakens.
From the original
Following another week of debate over President Trump’s trade tariffs, Derek Halpenny, Head of Research for Global Markets EMEA and International Securities, speaks with Shan Husain from FI FX Sales about the latest developments. They discuss legal uncertainties around reciprocal
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