The U.S. Dollar lost some ground overnight as global markets reacted to the announcement that steel and aluminum imports into America will be hit with tariffs.
The Trump administration made an executive decision to charge 25.0% for steel while aluminum will incur a 10.0% added cost to entry.
Unlike previous tariffs of 200.0-500.0% that have been levied specifically targeting Chinese-made steel imports during former administrations, this order encompasses the two metals coming from anywhere. A “national security” clause was used by the Department of Commerce to rationalize the move as not just a commercial protection, but one of safety and stability to the U.S.
The move could be the beginning of tough actions on trade that President Trump had promised during his campaign as a way to incentivize companies to just “buy American, hire American.” The move was a shock and cause equity markets to dwindle. We believe that the U.S. Dollar may face some scrutiny and as a result struggle to hold on to recent gains. It is the type of scenario that is unprecedented, thus wild swings may occur as this is digested and analyzed the next few days. The buck is up just below 1.0% for the week.
The Euro has lost as much as 1.4% of its value this week, but has made a comeback with the high volatility in markets based on trade concerns in the U.S. and Britain. Although data has been mixed this week, with German Retail Sales contracting and Spain’s PMI flourishing, the Euro survived from sustaining bigger losses.
After the tariff news in the U.S., the Euro was quick to mount a quick recovery over the greenback. Italian elections will be held on Sunday and Germany still has to deal with building a governing coalition, so political headlines will remain a potential downside risk for the shared currency.
The Japanese Yen is on a tear after stock indexes went red across the world. Furthermore, the safe-haven may become even more attractive after Bank of Japan Governor Haruhiko Kuroda told Japanese lawmakers that the economy is set for monetary tightening.
Kuroda sounded very confident as he even went as far as saying that inflation, a historically difficult thing to show progress in Japan, will reach the BOJ’s 2.0% target in fiscal year 2019. Establishing a timeline from here on out is very hawkish and may set the Yen for major appreciation. This is the strongest level for Yen over the buck since November 9th, 2016.