USD: Just a guy, trying to change the world - Commerzbank

It looks like a stroke of genius. Nobody thought it was possible, but the Donald Trump administration has made it. In just one weekend of negotiations, tariffs between the US and China were reduced by 115 percentage points each. Together, Chinese exports to the US and US exports to China accounted for around three per cent of all global exports in 2023. Overall, yesterday's announcement means that the global effective tariff rate has fallen by almost 3.5 percentage points. Such a large reduction has not been seen since the Uruguay Round in the mid-1990s, although the data on this is somewhat unclear, Commerzbank's FX analyst Volkmar Baur notes.

Damage to the USD might be difficult to repair completely

"The reduction is initially only valid for 90 days. While it is unlikely that the US government will raise the tariff back to 145%, it already has been said that it is also unrealistic to believe that tariffs could fall to 10% for Chinese goods. 30% should be seen as the lower limit. The tariff rate of 34%, announced on Liberation Day, therefore seems quite realistic. Of course, it remains unclear whether this will be added to existing tariffs or refer to the total value. Many of the details are still unclear. Therefore, one could say that uncertainty remains high and is likely to continue to be elevated in the coming months. And one would probably be right."

"So, was it a stroke of genius? At least the stock markets seem to think so. After all, the S&P 500 was around three per cent higher yesterday than at the start of April and is close to its all-time high. However, a different picture emerges when you look at the bond market and the US dollar. Ten-year US Treasuries are still yielding around 28 basis points more than at the start of April, and the trade-weighted US dollar has weakened by 2.5%."

"Perhaps, then, we should reconsider the objections and questions. To me, at least, it is unclear why the outlook for the US economy should be better today than before Liberation Day. Even though, of course, it is better today than it was last week. Nevertheless, the damage to the US dollar since then will probably be difficult to repair completely. Nothing has been gained so far. Hence, it looks more like a wild goose chase."