Dollar rebound shows tariff relief in the market
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To understand the degree to which President Trump's deescalation on tariffs has buoyed the U.S. economic outlook, the best place to look is probably the foreign exchange market.
Why it matters: The decline in the dollar, in the wake of last month's tariff announcement, represented the consensus in the market that the new levies would tip the U.S. into a recession.
- As the administration has struck deals on the tariff front, the dollar has regained much of its losses.
By the numbers: The ICE U.S. dollar index closed on April 2 at 103.8, and then fell to a low of 98.2 on April 21, a significant decline of 5.4%.
- Since then, it has recovered most of those losses and now stands at 101.8, just 1.9% below its level on "Liberation Day."
Between the lines: The fact the dollar has indeed weakened rather than strengthened, as normally happens upon the introduction of tariffs, still means the market is bearish on the U.S. economy.
- They're just not quite as bearish as they were three weeks ago.
- The perceived probability of a U.S. recession this year, as traded on Polymarket, has now receded to 42%, down from a high of 66%.
Follow the money: For U.S. investors, the low point of the period following "Liberation Day" came in the morning of April 7, when stocks traded 12.6% below where they had closed on April 2, before the tariff announcement.
- For European investors, however, the pain was worse. For them, the April 7 low was "only" 13.1% below April 2. Then came another, deeper, low on April 21, when stocks fell 15.2% from their levels before "Liberation Day."
- Since then, the S&P 500 has gained an eye-popping 18.6%, in euro terms, in just three weeks and is now higher than it was on the day of the tariff announcement.
The bottom line: The currency market, just like the stock market, seems to believe Trump's various tariff pauses are going to stay in place indefinitely.
