Morning Note: Tariff Chaos Shakes Dollar Confidence; BoE Cautious; Yen Gains

Dollar Confidence shaken by Tariff Chaos

In just one week, the U.S. dollar has shifted dramatically, from a global haven to a target of investor scepticism. This shift follows President Donald Trump’s erratic tariffs on both allies and rivals, which have rattled decades-long trust in the dollar as the world’s reserve currency.

The combination of diminished confidence in U.S. policy and fading American exceptionalism has fuelled the belief that the U.S. economy may suffer disproportionately from escalating trade tensions. Moreover, Trump’s abrupt policy reversals and intensification of the trade war with China have only added to concerns about the reliability of the current administration. However, some analysts suggest the dollar's selloff could be short-lived.

(U.S. Dollar Index Daily Chart, Source: Trading View)

From a technical analysis perspective, the U.S. Dollar Index has been on a bearish trend since early February 2025, as evidenced by a series of lower highs and lower lows. It is currently retesting the support zone between 99.20 and 99.40. If the index finds support and rebounds from this level, it could potentially surge upward to retest the swap zone between 101.30 and 101.60. Conversely, a decisive break below the current support zone may trigger further downside momentum.

BoE Cautious on Tariff Impact

Bank of England policymaker Megan Greene stated that it remains unclear how Trump’s trade measures will affect UK inflation, particularly given the unpredictable movements of the U.S. dollar. Speaking at the Delphi Economic Forum in Greece, Greene noted that higher trade barriers will likely slow growth in European economies. Moreover, earlier in the week, BoE deputy governors Clare Lombardelli and Sarah Breeden echoed this uncertainty, cautioning that it is too soon to determine the inflationary impact of U.S. trade actions on the UK economy.

(GBP/USD Daily Chart, Source: Trading View)

From a technical analysis perspective, the GBP/USD currency pair has been in a bullish trend since mid-January 2025, as indicated by a pattern of higher highs and higher lows. Currently, the price is retesting the resistance zone between 1.3100 and 1.3140. If it fails to break above this zone, bearish force might push the pair lower, potentially retesting the support zone between 1.2850 and 1.2890. Conversely, a solid breakout above the resistance could trigger continued bullish momentum, driving the pair higher.

Yen Strengthens on Uncertainty

The Japanese yen strengthened and is hovering near its highest level in over six months, as growing trade-related uncertainty drove demand for perceived stable assets. Market sentiment was lifted after U.S. President Donald Trump announced exemptions for smartphones, computers, and other technology products from the newly implemented "reciprocal" tariffs.

Meanwhile, investors are keeping a close eye on upcoming trade negotiations between Washington and Tokyo. Japan’s chief trade negotiator, Akazawa Ryosei, is set to meet with U.S. Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer later this week. Japan currently faces a reduced 10% tariff rate, so it seeks more favourable terms in the ongoing discussions.

(USD/JPY Daily Chart, Source: Trading View)

From a technical analysis perspective, the USD/JPY currency pair has been in a bearish trend since mid-January 2025, characterised by lower highs and lower lows within a descending channel. Recently, the pair rebounded slightly from the support zone between 142.00 and 142.60, potentially setting up a move upward to retest the previously broken swap zone at 145.70 – 146.30. Conversely, a solid break below the 142.00 – 142.60 support zone could trigger further downside, potentially leading to a retest of the order block between 140.00 and 140.50.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.