UBS On-Air: Paul Donovan Daily Audio 'Deals and delays'
The desk observes that the recent Swiss-US trade deal signals a further easing of trade tensions and potential tariff reductions, directly impacting U.S. import costs. Per the full note from UBS, the tariff cuts may not significantly influence consumer prices in the immediate term, especially given the delay in reflecting tariff changes in inflation data. This backdrop, combined with lingering issues around the implementation of trade agreements with the EU and China, presents a nuanced picture for FX traders. Consensus views around U.S. dollar strength are mixed, and without immediate catalysts on the calendar, market sentiment may remain cautious.
What the desk is arguing
The desk asserts that the newly announced Swiss-US trade deal reflects a gradual move towards easing tariffs that could impact currency valuations. Per the full note from UBS, while the effective tariff rates are being cut, it remains uncertain how much of this reduction will be passed on to consumers, limiting short-term impacts on inflation.
There are indications that market behaviors may not align with anticipated consumer price changes. Historical context suggests that cuts in tariffs do not always lead to immediate drops in consumer prices, particularly in sensitive areas like food, where price elasticity is a significant factor. As noted, any real impact from these tariff changes on inflation metrics may not materialize until the first quarter of next year.
Where it sits in our coverage
Our consensus target for USD/CHF is 1.075, with a range from 1.04 to 1.12. Notable targets around this consensus include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
While jpmorgan aligns with our bullish perspective on USD/CHF, bofa presents a contrasting and more cautious outlook. The desk's call sits at the upper end of the spread, suggesting optimism about the dollar's strengthening against the Swiss franc.
How other firms see it
Firms like jpmorgan and goldman share a common view that the dollar may strengthen with trade easing, while bofa takes a more bearish stance on the same pair. This divergence highlights a critical debate on the sustainability of dollar gains amidst ongoing global trade negotiations.
As trade dynamics unfold, the USD/CHF pair should be monitored closely, particularly in alignment with central bank policies from the Fed and the SNB. Understanding the upcoming inflation data in the U.S. will provide further clarity on how these trade agreements influence market sentiment.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Swiss-US trade deal signals easing trade tensions.
- 02Tariff reductions may have limited short-term impact.
- 03Consensus views show mixed outlooks on USD strength.
Market implications
Traders should watch the USD/CHF pair closely, particularly any movements approaching the 1.075 level which could signal a shift in sentiment. Additionally, the delay in pertinent inflation data could lead to volatility as traders recalibrate based on real economic impacts.
Risks to this view
A possible reversal in the trade narrative, such as unforeseen complications in implementing trade agreements or negative rulings from the U.S. Supreme Court regarding tariffs, could undermine the current bullish scenario for the U.S. dollar.
Good morning. This is Paul Donovan, Chief Economist at UPS Global Wealth Management. It's seven o'clock in the morning London time on Monday the 17th of November.
The Swiss-US trade deal last Friday marks another reduction in tariffs paid by US importers, following on from a quick reduction in tariffs on selected imported foodstuffs last week. The Swiss higher tariff had not been in place for that long. The US government had shut down for the more recent months of its operation and US importers may have anticipated this tariff revision.
It is not clear, therefore, how much of the Swiss tariff has been passed through to US consumers. Most of the August tariffs are not expected to show up in US consumer price inflation before the first quarter of next year. However, other examples where effective tariff rates have been cut have not tended to lead to a reversal of consumer price increases.
This may matter less with US imports from Switzerland, but it is likely to be an issue around food price inflation, where consumers have a disproportionately high level of price sensitivity. Of course, announcing a trade deal does not automatically mean the implementation of a trade deal. US Trade Representative Greer has been complaining that the EU has been slow to cut tariffs, by which Greer means they have not cut any of the tariffs on US imports that had been agreed.
China has not yet finalised a deal with the states on rare earth exports, although US Treasury Secretary Besant was saying that a deal would hopefully come before the US Thanksgiving holiday. This does underscore that while financial markets tend to react to the spin of a trade agreement announcement, the substance does not follow through with quite the certainty that investors might assume. The question of whether any of these agreements survive if the US Supreme Court rules against the legality of a majority of US tariffs is also relevant.
Japan's third quarter GDP fell, and the volatility of global trade and a slowdown in housing were behind the decline. There was clear front-loading of demand for Japanese exports to the US ahead of US trade tariffs. That was particularly the case in the Japanese auto sector, and there was then a payback in the third quarter with weak demand for autos, amongst other things.
This is interesting because to date, Japanese autos are the only major area where exporters have attempted to absorb some of the cost of US tariffs. Japan is expected to receive a fiscal boost in 2026 from the new administration. Today's numbers were also somewhat better than had been anticipated, business spending being a notable outperformer.
Sources & References
How we cover this story