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>>USD: How Ongoing Tariff Uncertainty Pressurizes the Dollar – Commerzbank Analysis

USD: How Ongoing Tariff Uncertainty Pressurizes the Dollar – Commerzbank Analysis

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about 10 hours ago

Tariff Uncertainty Undermines USD

Unpredictable US tariff policy adds a non‑quantifiable risk that outweighs traditional fundamentals. When trade rules for the EU, China and others are unclear, the dollar loses stability despite strong domestic data. Market participants favour certainty and react sharply to any policy speculation.

Channels of Trade Policy Impact

Ambiguous tariffs depress global trade flows, lowering demand for the reserve currency. They also cloud the Federal Reserve’s interest‑rate outlook, reducing the dollar’s yield appeal. Potential retaliations further threaten US export earnings and foreign investment.

Market Reaction and Positioning

Traders increase hedging and shift temporarily to the franc or yen as a safe haven. Options markets show higher volatility premiums on dollar crosses. Commerzbank notes that known tariffs can be priced, but unknown, politically‑driven measures cannot.

Historical Context and Outlook

The 2018‑19 US‑China trade war produced similar volatility, decoupling the DXY from macro trends. For stability, the market needs a clear, predictable tariff framework or a shift toward other drivers like monetary policy. Until then, the dollar remains vulnerable to trade‑policy spikes.