The dollar’s boost from tariff announcements last weekend proved short-lived and, despite rallying a bit in response to the latest Employment Report, the greenback is set to end the week lower against most currencies. It’s clearer than ever that investors will wait to see tariffs actually be imposed – and perhaps remain in place for a while – before fully pricing them in. Ultimately, we think 10% universal tariffs (and more on China) will arrive in Q2 and give a more sustained boost to the dollar then. And in the meantime, we think that yield gaps will swing in favour of the greenback as the Fed stays on the sidelines and other major central banks generally cut by more than is currently discounted in markets.
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