Sorting through the post-liberation mess in currencies

President Trump’s extraordinary “Liberation Day” announcement has prompted a major risk-off event across financial markets, sending safe-haven currencies soaring and commodity currencies crashing. It has also put paid to the idea that his aggressive tariff plan would result in a stronger dollar. Instead, the greenback has dropped sharply on intensifying fears of a US recession and a broader unwind of US financial market exceptionalism. Both the extent of US tariffs and China’s retaliatory measures today are greater than we had anticipated, and the dollar’s drop in response is perhaps even more surprising. We are reassessing our forecasts in light of these developments, as well as the ongoing market turmoil, and will publish new ones in our FX Markets Outlook next week.