USD: Longs reduce exposure on tariff delay – Scotiabank

The US Dollar (USD) is generally softer on the day and is ending the week with a sizeable loss that leaves the DXY trading at its lowest level since mid-December. Tarifffatigue is weighing on USD sentiment. After a series of empty threats, with the 'big one' yesterday on reciprocal tariffs also a no show perhaps the icing on the cake, long USD position holders are squaring up and reassessing, Scotiabank's Chief FX Strategist Shaun Osborne notes.  

USD extends losses

"The risk of tariffs has not gone away but the April 1 deadline for the Trump-ordered review of trade and FX practices by the Treasury looks increasingly like the point at which we may find out with a bit more certainty the who, what and when of how tariffs will be imposed. There is also the suspicion that the Trump team is concerned about the impact of the president’s trade policy on domestic prices, with inflation still proving hard to beat down." 

"Businesses may be more inclined to try and pass on higher costs to the consumer now than in the past, given the familiarity we all have with rising prices after the past few years. And for students of Trump 1.0, the pattern of trade in the USD is still looking quite familiar under 2.0. Recall that the outlook for the USD looked constructive in the early stages of Trump’s first term for similar reasons to those that have lifted sentiment in the past couple of months, only for the DXY to slide 10% over the course of 2017." 

"A soft weekly close for the DXY—which looks highly likely, barring a major turnaround this morning— will indicate risk of a bit more weakness in the USD ahead, with the index at risk of sliding back another 1-2%-ish I think to correct a bit more of the rally seen since September. It’s a long weekend ahead for the US and much of Canada and market participation already feels light so traders may not lean too heavily on the USD today. Headline US Retail Sales are expected to fall slightly (ex-autos data may be a little better). Industrial Production is forecast to rise slightly."