Created
: 2025.06.02
2025.06.02 20:26
With a new month underway, the US Dollar (USD) finds itself on the defensive again, supporting the idea that some of its late May gains could have been related to month-end demand. But the start of June also brings another round of broader weakness in US assets; the USD is lower alongside softer equity futures and weaker US Treasurys so far today--revisiting the uncomfortable pattern of trade that has emerged over the course of the past few weeks, Scotiabank's Chief FX Strategist Shaun Osborne notes.
"Friday, President Trump announced 50% tariffs of steel and aluminum while China responded in kind to accusations from the US that it had failed to live up to the trade agreement reached in Geneva last month. Beijing promised to take measures to protect its own interests. Markets are not moving with the same violence as April and May, at least at this point, but renewed weakness in the USD after failing to hold gains made around the tariff stay/reprieve swings last week reflects a high degree of discomfort among investors prospects."
"Trade and tariff tensions risk slowing US growth and boosting US inflation at a time when investors have become sensitive to threats to the Fed's policy independence. Signs of weakening US institutional credibility amid a looser fiscal policy may add to headwinds for US assets. The DXY has found some support near the May 23rd low (99.7) but weaker sentiment and bearish technical trends suggest a test of the April low (97.9) beckons. More generally, the DXY is at risk of slumping back to the 90-95 range in the next few months, we believe."
"There is a lot of data for the markets to work through tis week, including NFP data Friday. But it's not clear that the data run will have much impact on the USD while the Fed remains clearly sidelined--and there remains a good deal of uncertainty about how and when the ongoing trade war will be reflected in hard US data. Last week's slump in the preliminary April imports total (down nearly 20%) suggest that may be soon. Some signs of softening in the US trucking industry may also be indicative of a the global trade slowdown starting to bite on US activity."
Created
: 2025.06.02
Last updated
: 2025.06.02
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