USD: Confidence erosion limits upside – Commerzbank

Commerzbank’s Antje Praefcke argues that renewed tariff uncertainty under the US president is eroding long‑term confidence in the Dollar, even as upcoming US data such as ISM, ADP and NFP loom. She warns that doubts about US trade policy, fiscal balances and future Federal Reserve independence could mean stronger US growth no longer translates into sustained Dollar support.

Tariffs, Fed doubts and Dollar support

"With each step of reduced confidence in a stable, long-term economic and trade policy (I am leaving geopolitics out of the equation for now, but it is ultimately also part of it), I think the US president is further eroding confidence in the US dollar. Interim respites (such as after the conclusion of various trade agreements) lead to a supposed calm and stability, but both are fragile in view of the US president's erratic policies."

"I therefore fear that sooner or later even positive US data will no longer be able to provide any noticeable support for the dollar (by the way, next week we will get: ISM Index, ADP Index, NFP). This is because, on the one hand, confidence in the US administration and its currency is simply dwindling (as my colleague Volkmar aptly described in the middle of the week, how economic balances have changed and how heavily the US economy depends on foreign capital) and, on the other hand, the issue of inflation and the independence of the Fed could become increasingly crucial again."

"After all, high growth usually means stronger price pressure, which the central bank must counteract. If confidence in the central bank's ability to respond appropriately wanes due to political pressure or political influence, stronger growth is no longer positive for the currency. As has often been emphasized, much depends on how the “Fed after Powell” will position itself in relation to political pressure."

"Ultimately, the US president's policies could do more harm than good to the US if global confidence in the country as a stable, reliable, legally secure, and long-term partner in all areas (trade, geopolitics, economy) continues to dwindle. Once confidence has hit rock bottom, the road back up is more difficult than the way down. So I continue to doubt that “Make America great again” will also make the dollar great again."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)