USD: Is reason now taking hold? - Commerzbank

US inflation is likely to fall next autumn. On Friday, the White House announced another initiative aimed at mitigating the impact of tariffs, adding a significant number of agricultural products to the list of exceptions not subject to reciprocal tariffs. These include coffee, meat, tomatoes and coconuts, for example, Commerzbank's FX analyst Michael Pfister notes.

Lower inflation to pave the way for further rate cuts

"The reasoning behind this was that these agricultural products cannot be produced in sufficient quantities in the US to meet domestic demand, and the intention is to reduce pressure on consumers. As is so often the case, however, the announcement is riddled with logical inconsistencies. Those responsible should have realized even before the announcement that coconuts, for example, are not exactly abundant in the US."

"It is also clear that Brazil, being one of the largest agricultural producers, continues to be affected by punitive tariffs of 40%. Those responsible have emphasized for months that tariffs do not raise prices, yet now a reduction in tariffs is supposed to lower them. Let's not kid ourselves: this adjustment is intended to protect US consumers from the effects of tariffs. Affordability was one of the most important issues in the recent elections, so lower food prices should help in this regard."

"In principle, however, lower inflation should pave the way for further interest rate cuts. Recently, interest rate expectations had increasingly shifted towards no rate cut in December, but this may change again in the coming days. This correction is likely to be one of the main reasons for the continued resilience of the US dollar. Let's see if this strength persists when more important US data is released again this week."