UBS On-Air: Paul Donovan Daily Audio 'Make America Uncertain Again'
The desk interprets recent insights from the UBS Global Wealth Management commentary as highlighting significant uncertainty surrounding the U.S. economy, as evidenced by the Federal Reserve's Beige Book, which mentioned "uncertainty" 80 times. This heightened focus reflects broader economic anxieties tied to current policies and their impact on businesses. Per the full note, the surging references to tariffs during a period of aggressive tax policy suggests a potential deterioration in the business environment, with serious implications for consumer prices and market dynamics. The implications of these findings could resonate through currency markets, particularly influencing USD sentiment as traders assess the next moves of the Federal Reserve amidst this uncertainty.
What the desk is arguing
The desk frames this as a critical inflection point for the USD, bolstered by the extensive mentions of uncertainty in the Beige Book. The immediate effects may be felt in corporate decision-making processes and consumer pricing, as the commentary notes unprecedented levels of concern about tariffs entering the marketplace.
Moreover, the reference to tariff mentions being high indicates a significant influence on import costs, potentially exacerbating inflationary pressures in the U.S. This situation, emphasizing uncertainty, could lead to fluctuations in market confidence, affecting USD performance against other currencies.
Where it sits in our coverage
Our consensus target for USD/EUR is set at 1.075, with a range from 1.04 to 1.12, aligning with the views of firms such as: - jpmorgan: 1.10 (Mar-26) - bofa: 1.04 (Mar-26)
The desk's interpretation aligns closely with jpmorgan, indicating a slightly bullish stance compared to bofa, which presents a more cautious outlook at the lower end of the range.
How other firms see it
Group-aligned firms like jpmorgan and goldman anticipate the USD to strengthen as the implications of U.S. policy unfold. Conversely, firms such as bofa are taking a contrary view, expecting a weaker dollar due to external pressures and trade dynamics.
Watch the USD/JPY to gauge how global trade tensions may influence the dollar's trajectory against the yen, as well as the possible spillover effects on broader currency pairs connected to U.S. economic health.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The Federal Reserve's Beige Book indicates unprecedented levels of uncertainty impacting businesses.
- 02Tariffs were prominently mentioned, with the potential to increase consumer prices significantly.
- 03The commentary suggests a cautious approach to USD ahead of any potential shifts in policy or economic indicators.
Market implications
Market participants should watch for signs of how U.S. trade policies may affect consumer pricing, especially as tariff discussions evolve. A critical level to monitor will be the 1.075 target for USD/EUR, as it could signal the direction of USD strength based on market sentiment and Federal Reserve policy responses.
Risks to this view
A reversal in this outlook could occur if the Federal Reserve shifts its stance towards a more dovish monetary policy, or if there are significant changes in trade negotiations that alleviate current tariffs. External geopolitical stability could also serve to strengthen the USD unexpectedly.
Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management at 7 o'clock in the morning London time on Thursday the 24th of April. The US Federal Reserve's Beige Book is likely to be biased. Anything that relies on sentiment is at risk of bias these days.
It is the views of businesses who want policy to go in a certain way, edited into a coherent whole by economists who are likely to properly understand the costs associated with current US government policy. Nonetheless, the results of last night's Beige Book were remarkable enough to penetrate that potential bias. The word uncertainty was included on 80 separate occasions.
That is more than double the occurrence during either the pandemic or the global financial crisis. This is perhaps the central issue. US President Trump has pursued an erratic policy, with trade, taxes and in other areas.
Any company with a supply chain that interacts with the government in any way has less certainty about policy, or indeed there being someone in government to pick up the phone. This will affect business decisions and the Beige Book suggests that perhaps the partisan media bubble is now being penetrated by an uncertain reality. Tariffs were mentioned in the Beige Book 107 times, which is hardly surprising given that the anecdotes were collected during some of the most aggressive tax increases in US history.
US President Trump refuted a Financial Times article suggesting that there may be some easing of taxes on auto parts and the United States has started proceedings to tax foreign trucks. That effect may be limited, given that there has been a slump in demand for road freight in the States as a result of other trade taxes. The Wall Street Journal reported that taxes on US consumers of goods from China could come down to a tax rate of 50 to 65 percent.
That would equate to about a 25 percent increase in the consumer price of imported consumer goods, and the economic damage of that is not much less than the economic damage of 145 percent taxes. Yesterday's central bank speech didn't offer that much in the way of policy surprises. The Bank of England Governor Bailey talked of the downside risk to growth, which reinforces the idea of more interest rate cuts coming.
ECB President Lagarde also stressed the disinflation impact of trade taxes. This is particularly true outside of the United States, of course. Internationally, there are likely to be fewer trade taxes levied on domestic consumers than is the case in the US, and the slowdown of the US economy will shift supply and demand balances in favour of lower global prices.
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