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USD's safe haven appeal fades as trade war backfires - Rabobank

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USD's safe haven appeal fades as trade war backfires - Rabobank

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New update 2025.05.01 21:17
USD's safe haven appeal fades as trade war backfires - Rabobank

update 2025.05.01 21:17

Uncertainty may be a prevailing theme of the Trump presidency, but over the past month a number of lessons have been learnt which will likely have an ongoing impact on both the behaviour of politicians as well as investors. Firstly, the safe haven attraction of US treasuries and the USD are not as gold-plated as had been assumed. Secondly, China's defiance in the face of the trade war with the US has forced the market to reassess the strengths and vulnerabilities of both sides. As a result, speculation that it might be the US, rather than China, that blinks first has gathered some support, Rabobank's FX analyst Jane Foley reports.

EUR/USD could correct to 1.10 on trade progress

"Both of these factors suggest that Trump's hand in driving deals with the US' trading partners may not be as strong as he had expected. We see scope for EUR/USD to drop back as far as 1.10.  That said, US fundamentals have weakened and we see the greenback on a weaker trajectory over the medium-term. We forecast the currency pair at EUR/USD1.15 on a 12-month view." 

"On the back of Trump's trade war, Rabobank now sees the chances of a US recession as being larger than 50%. That said, in view of the inflationary risks associated with tariffs we don't expect the Fed to be able to cut rates as much as the market is expecting.  A less dovish than expected Fed should provide some support for the USD in the weeks ahead. A corrective move lower in EUR/USD may also stem from profit-taking in long EUR positions. "

"This morning, press reports indicated that the EU may be preparing a plan to lower tariff and non-tariff barriers. This could be presented to the White House next week to jump start trade talks. If more constructive news on this front is forthcoming, we would expect the USD to benefit from short covering. That said, in view of US recession risks, we would also expect the USD to struggle to hold these gains over the medium-term."


Date

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 : 2025.05.01

Update

Last updated

 : 2025.05.01

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