Trump’s technology exceptions boosts sentiment but US Dollar continues to slide

Given the weekend’s developments, it’s tough to call how the markets react to the weekend’s newsflow. Things were looking optimistic for a moment after the Trump administration announced a series of exceptions for critical technology inputs. Semiconductors and other parts critical to, among other things, the Apple products, were identified as being amongst a litany of products exempt from the higher than 125% tariff rate. However, President Trump cast doubt on the longevity of these exceptions – dismissing that they were exceptions at all despite the White House’s clarification explicitly saying so – suggesting the products would be included in a different “bucket”, exposed to the 20% “fentanyl tariff” and that no one “was off the hook”. The developments add to the confusion about Trump’s incoherent and ostensibly improvised trade policy.

In the initial throes of Asian trade, the mood is looking very positive. Although there’s legitimate doubts about whether it will last, the markets are happy enough that even if tech parts are still tariffed, the rate will be materially below the 145% rate announced last week. When the “Liberation Day” tariffs were released, there were three things the markets were hoping for to turn investor sentiment around: ideally, a total rescission of the plan, or, more realistically, confidence tariffs wouldn’t move higher, or indications that negotiations or concessions would be extended. While confidence is something this administration is ever likely to engender, the fact it's negotiating, even if it’s done under slight sufferance, is a positive thing for the markets.

Despite the positive mood prevailing in the markets at the outset of the week, the US Dollar continues to slide to multi-year lows, hitting levels not seen since the beginning of the Fed’s last hiking cycle. The US Dollar is weakening for a variety of reasons. The first is cyclical in nature. The markets are pricing in a weaker US economy – and subsequent interest rate cuts from the US Federal Reserve. The second is structural in nature and arguably more important. The Trump administration’s erratic policy making and the stresses it is placing on the global financial system is seeing investors offload US assets and creating a dynamic where trade surplus nations look to park reserves in non-Dollar denominated assets.

^{(Source: Trading View)}
(Past performance is not a reliable indicator of future results)