Trump made good on his promise, imposing tariffs on dozens
of countries starting April 9. But it didn’t last long. Just hours later, the
U.S. president posted on Truth Social, announcing a “90-day PAUSE” and a
significantly reduced reciprocal tariff during that time. The markets reacted
instantly.
The S&P 500, Nasdaq, and Dow Jones bounced
enthusiastically, along with other risk assets. Later, Trump framed it as a big
win, casually bragging about how much two executives had gained from the move.
The optimism carried through the rest of the week, helping the indexes close in
the green.
Meanwhile, tensions between the U.S. and China not only
persisted but escalated, briefly shaking investor confidence as both sides
raised tariffs to near-prohibitive levels. But hey, what’s a little global
economic slowdown between two world powers? It’s not that big a deal… (cue
the sarcasm).
Apparently, only the business world is worried. As
Reuters says: “Sweeping tariffs imposed by U.S. President Donald Trump
since April 2 and subsequent pauses in some of them have created uncertainty
for companies around the world, causing some to pull back or refrain from
issuing financial guidance.”
No wonder the DXY
continues to struggle to recover; in fact, it
sinks further as traders redouble their bets that the euro will continue to
rise after breaking a long-term downtrend. Even words from U.S. Treasury
officials that the U.S. continues to support a strong dollar policy have done
little to stem the slide.
Markets are increasingly convinced that the US economy is
losing steam and are now betting that the Fed could intervene with not just one
but possibly four rate cuts before the end of the year. All eyes are on Jerome
Powell’s speech this Wednesday: Will he give any clues as to what lies ahead?
It’s worth noting that the Fed’s biggest hesitation
regarding further lowering rates is the risk of rising inflation — and that
concern is not unfounded. After all, tariffs tend to drive up domestic prices.
The hope is that the tariffs will dampen demand, which could help offset
inflationary pressures.
Will the dollar keep falling?
The dollar index dipped below 89 during Trump’s first term,
so there’s theoretically still room for a drop. However, if tariffs remain in
place, U.S. imports will likely decline. Fewer imports mean less demand for
foreign currency, which could support a stronger dollar, but the effect will
not be instantaneous
