Created
: 2025.04.07
2025.04.07 20:19
A reasonably normal tariff policy would cause the dollar to appreciate. Why? Because US consumers would prefer to consume US goods instead of imported goods, and US companies would prefer to install US machinery. After all, no tariffs would have to be paid on that. This means that demand for US goods would increase, as would their price relative to foreign goods, Commerzbank's Head of FX and Commodity Research Ulrich Leuchtmann notes.
"This can happen in two ways: larger numbers on price tags in the US (i.e. US inflation) or a stronger US dollar. The US Federal Reserve would have the choice between the two alternatives because it is the Fed that controls price developments. And because the Fed is generally assumed to want to keep inflation at 2%, the logical conclusion from the market's perspective was that the US tariff policy would strengthen the USD."
"But it gets worse. These sudden interest-rate cut expectations don't just appear out of thin air. They reflect the anticipation of a massive negative real economic shock as a result of US tariff policy. I suspect that most market participants expect the US economy to slide into a recession as a result of the tariffs."
"The economic 'story' that the market is telling us with these two-track inflation expectations is that a recession or recession-like conditions will cause US demand to slump to such an extent that the initial increase in costs resulting from tariffs will be more than offset in the medium term. If that were to happen, the tariffs' medium-term price effect would evaporate - along with any reason for a stronger US dollar."
Created
: 2025.04.07
Last updated
: 2025.04.07
FXStreet is a forex information website, delivering market analysis and news articles 24/7.
It features a number of articles contributed by well-known analysts, in addition to the ones by its editorial team.
Founded in 2000 by Francesc Riverola, a Spanish economist, it has grown to become a world-renowned information website.
We hope you find this article useful. Any comments or suggestions will be greatly appreciated.
We are also looking for writers with extensive experience in forex and crypto to join us.
please contact us at [email protected].
Disclaimer:
All information and content provided on this website is provided for informational purposes only and is not intended to solicit any investment. Although all efforts are made in order to ensure that the information is correct, no guarantee is provided for the accuracy of any content on this website. Any decision made shall be the responsibility of the investor and Myforex does not take any responsibility whatsoever regarding the use of any information provided herein.
The content provided on this website belongs to Myforex and, where stated, the relevant licensors. All rights are reserved by Myforex and the relevant licensors, and no content of this website, whether in full or in part, shall be copied or displayed elsewhere without the explicit written permission of the relevant copyright holder. If you wish to use any part of the content provided on this website, please ensure that you contact Myforex.
Myforex uses cookies to improve the convenience and functionality of this website. This website may include cookies not only by us but also by third parties (advertisers, log analysts, etc.) for the purpose of tracking the activities of users. Cookie policy