USD/JPY eases from 147.50 as investors ponder the impact of Trump’s tariffs
- The US Dollar maintains its bullish trend intact, but price action has stalled below 147.50.
- Investors might be starting to worry about the impact of Trump's tariffs on US economy.
- Later this week, US and Japan's inflation readings are likely to set the pair's near-term direction.
The US Dollar is trimming previous gains on Monday. It is trading practically flat, within Friday's trading range, with the market mood cautious as investors come to terms with the negative impact of Trump’s hefty Tariffs on the US economy.
The pair is holding most of the gains after Friday’s 0.8% rally, but it remains unable to find any significant acceptance at the 147.50 area, yet with downside attempts limited at 1.4685 so far.
US President Trump rattled markets over the weekend, threatening to impose 30% tariffs on imports from the European Union and Mexico if a deal is not reached before the August 1 deadline.
US tariffs are weighing on the US Dollar’s recovery
These levies increase the 20% and 25% taxes announced on the April 2 liberation day and build on the 35% levies imposed on Canada a few days earlier and the 50% tariffs on copper, aluminium, and steel.
Investors remain confident that this is only a negotiation tool. Still, the US president is unpredictable, and the potential impact of such trade restrictions on US inflation and economic growth seems to be starting to weigh on the US Dollar’s recovery.
On Friday, the Chicago Fed President, Austan Goolsbee, warned that the new tariffs would complicate the bank’s inflation projections and might force policymakers to adopt a more cautious view on interest rate hikes and delay the easing measures that Trump is calling for.
The calendar is thin today, and investors might be tempted to look from the sidelines, awaiting US CPI figures on Tuesday for further clues about the Fed’s near-term decisions. On Thursday, Japan’s national CPI might help to assess the chances for further BoJ tightening in the coming months.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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