USD: Waning confidence restricts potential gains – Commerzbank

US Dollar Faces Headwinds from Trade Policy Uncertainty

According to Antje Praefcke of Commerzbank, renewed concerns over US tariffs under the current administration are undermining long-term trust in the Dollar. She notes that, despite key economic releases on the horizon—including the ISM, ADP, and NFP reports—persistent doubts about US trade strategy, fiscal health, and the future independence of the Federal Reserve may prevent robust US growth from translating into lasting Dollar strength.

Trade Tensions and Central Bank Concerns

Praefcke points out that each episode of uncertainty surrounding US economic and trade policy further weakens global confidence in the Dollar. While temporary stability may follow the signing of new trade deals, she warns that such calm is fragile given the unpredictable nature of US policy decisions.

She expresses concern that, before long, even favorable US economic data may fail to bolster the Dollar. This is due to waning trust in US leadership and its currency, as well as shifting economic balances and the country’s growing reliance on foreign investment. Additionally, questions about inflation and the Federal Reserve’s autonomy are becoming increasingly significant.

Typically, strong economic growth leads to higher inflation, prompting the central bank to act. However, if markets lose faith in the Fed’s ability to respond independently—especially under political pressure—then economic expansion may no longer benefit the Dollar. The stance of the Federal Reserve in the post-Powell era will be crucial in determining the currency’s outlook.

Long-Term Risks to US Credibility

Praefcke cautions that the current administration’s approach could ultimately damage the US’s reputation as a stable and trustworthy partner in global trade, geopolitics, and economic affairs. She stresses that once international confidence is lost, regaining it is a far more challenging process. As a result, she remains skeptical that the “Make America Great Again” agenda will restore the Dollar’s former strength.

(This article was produced with the assistance of artificial intelligence and reviewed by an editor.)