USD: When will the market realize? – Commerzbank

The hard USAs of the United States still show no real signs of a drastic economic slowdown as a result of the commercial and economic policy of the new US administration, although the growth in the first quarter surprised the decline with a contraction, feeding the fears of recession. At least the indices of purchasing managers have recovered after the fall at the beginning of the year and have returned to a comfortable expansion territory in May, both for the manufacturing and services sectors, says CommerzBank’s currency analyst, Antje Praefcke.

New problems are coming for the USD from the US budget.

“Does this mean that the fears of recession were exaggerated and that the dollar has one less problem than to worry? Not so fast, please. Our economists have always supposed that a recession can be avoided in the US. In addition, the market has already reduced its fears of recession based on the still solid data of the US of the last weeks and months. However, the effects of tariffs will probably be visible in the second half of the year, partly due to the 90 -day suspension.

“However, new problems for the USD are coming from another side. I already touched this issue on Tuesday: the US Fiscal Budget of Trump, which has been discussed in a controversial manner even within its own party, has been approved by the House of Representatives and now goes to the Senate. Among other things, it seeks to make permanent tax cuts introduced by Trump. However, the financing for this is also unstable. It can be assumed that the budget deficit will continue to increase. “

“Perhaps the issue becomes more urgent now that it is being discussed more in public. I am curious to see when the market will realize that this is the next great (structural) load on the dollar.”