Dollar falters further as tariffs & Ukraine trump hot CPI

Despite Wednesday’s hotter than expected US CPI report, the greenback remains on the backfoot as the dollar “Trump trade” has gone into reverse. Between news on President Trump’s tariffs plans, his steps towards an apparent rapprochement with Russia, and some softer US economic data towards the end of the week, the dollar has dropped to its lowest level in two months, unwinding roughly half its post-election rally. A continued correction period for the dollar looks increasingly likely, given investors’ ‘glass half-full’ interpretation of yesterday’s tariff announcement, still-skewed positioning, and the limited scope for a further pricing out of Fed rate cuts. Nonetheless, we are sticking to our forecast that the dollar will end the year higher because we still think US tariffs will end up rising significantly, while US economic and equity market outperformance will resume.