Steno Signals #193 – The USD reset is underway
Morning from Copenhagen!
It’s been a remarkable week—and weekend—in policy space. On Friday, the White House released a list of exemptions from the reciprocal tariffs (including, for example, semiconductors). Then, on Sunday, Trump “tweeted” that no exemptions were made, leaving Howard Lutnick once again to explain what was actually going on.
“He’s saying they’re exempt from the reciprocal tariffs, but they’re included in the semiconductor tariffs, which are probably coming in a month or two.” So, we’d better get used to the new catchphrase: “sectoral tariffs.” It’s set to become a core theme in new policy analysis from Trump’s administration through April and May.
No wonder the policy uncertainty index has climbed to levels not seen since the global lockdown in March 2020—unsurprising when the administration struggles to communicate even the simplest of things. Are there tariffs on semiconductors, laptops, and the like? Probably yes—but if not now, they will be soon.
Chart 1: March 2020 style uncertainty
Last week was one of the most challenging periods for the USD market in quite some time. Extreme policy uncertainty, combined with early signs that the US may pursue deals involving FX policy considerations, has made the USD appear increasingly vulnerable.
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