The US dollar has weakened modestly start the start of this week resulting in the dollar index falling back below the 104.00-level. The main trigger has been Bloomberg report stating that President Trump’s plans for a “Liberation Day” tariff announcement on 2nd April is poised to be more targeted according to aides and allies.
While the announcement would remain a very significant expansion of US tariffs, it is not shaping up to be as broad-based as initially threatened or feared.
The report adds that the “reciprocal tariff” plans will exclude countries that don’t have tariffs on the US, and with whom the US has a trade surplus. Furthermore, it has been reported that other existing tariffs like on steel and aluminium may not necessarily be cumulative helping to ease the potential hit to those sectors. It follows comments last week from US Treasury Secretary Bessent who that those tariffs may not add on to the country-by-country rates applied under “reciprocal tariff” plans. The list of countries that are cited in the report as likely targets for Trump new tariffs include the EU, Mexico, Japan, South Korea, Canada, India and China. Scott Bessent has emphasized that roughly 15% countries are the worst offenders. President Trump had also previously indicated that he plans to announce sector specific tariffs on autos, semi-conductors and pharmaceuticals in early April, but the Bloomberg report is also suggesting now that they aren’t set to be launched on the same day as the “reciprocal tariffs” on 2nd April. According to officials, an auto tariff is still being considered and President Trump has not ruled it out at another time. The “Liberation Day” announcements might even include some roll back of tariffs on Canada and Mexico although that is described as “uncertain”.
We expect the report of more targeted US tariff plans to provide relief for financial markets at the start of this week. Keven Hassett who is the National Economic Council director stated that “I think markets need to change their expectations, because it’s not everybody that cheats us on trade, it’s just a few countries and those countries are going to be seeing some tariffs”. The report should help to further dampen upside risks for the US dollar from President Trump’s upcoming tariff announcements. It comes on top of recent evidence showing that the US economy is slowing in response to heightened policy uncertainty at the start of Trump’s second term, and plans for looser fiscal policy in China and Germany have already helped to dampen US dollar strength. The Fed signalled as well last week that it is prepared to look through higher inflation from tariffs expecting the pick-up to prove transitory. The dovish reaction function was another unfavourable development for the US dollar.
