MUFG expects the US dollar to see only modest gains following signs of tariff de-escalation, citing lingering investor caution, skepticism about US policy stability, and shifting yield dynamics—especially favoring the yen medium-term.
Key Points:
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Tariff Optimism Priced In:Positive US comments on de-escalation have boosted the dollar, but FX reaction likely capped, with much of the optimism already reflected in markets.
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JPY Outlook Improving:Despite near-term underperformance, the yen is structurally supported by rising JGB yields (30Y at 25-year high near 3%) and reduced incentives to hedge USD exposure.
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Dollar Headwinds Remain:Even if tariffs ease, damage to investor confidence and global positioning has already occurred. Any rebound in risk appetite will likely be measured.
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Policy Credibility in Question:Given the unpredictability of President Trump’s trade policy approach, investors are likely to remain cautious in interpreting any deal headlines.
Conclusion:
While trade optimism has offered a short-term lift to the USD, MUFG sees the scope for further gains as limited, with investor skepticism, structural yen support, and policy uncertainty capping broader dollar upside.
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This article was written by Adam Button at www.forexlive.com.