Investment banks warn of the arrival of the US dollar bear market, and the three pillars support bearish logic

Asian Market Review

Last Friday, the US dollar index rose, driven by hopes of easing global trade tensions, and so far, the US dollar is quoted at 99.49.

Tariffs-

Trump: "Fair" tariff prices will be set for different countries; it is unlikely that the tariff will be suspended for another 90 days; the trade agreement is expected to be reached within three to four weeks.

U.S. Trade Representative Office: Trump will ultimately decide whether to advance alternative measures to cancel or reduce the current 10% tariffs on relevant countries.

Russia-Ukraine conflict-

U.S. Secretary of State Rubio said that the United States will not expand sanctions on Russia to avoid interfering with the peace process of resolving the Ukrainian conflict; previously, Trump said Russia has no reason to attack civilians and may have to deal with it through financial sanctions.

Putin said Russia is ready to negotiate with Ukraine without prerequisites. Hamas conflict -

According to AFP: Hamas officials say they are willing to release all remaining hostages and seek to achieve a five-year ceasefire.

The Israeli army said that if there is no progress in negotiations, the offensive will be greatly escalated.

Hamas officials: As long as the Israeli army continues to occupy, Hamas will not put down his weapons.

Federal-

"Federal Melodrobe": Market Overinterpretation Hamak JuneRemarks about interest rate cuts.

Federal Financial Stability Report: Global trade war and policy uncertainty are the biggest risks of financial stability.

Trump-

Trump hinted to support banning U.S. Congressmen from trading stocks.

Trump: U.S. ships should pass through Panama and the Suez Canal for free; aihuatrade.comprehensive tariffs will cut income taxes for those with annual incomes below $200,000.

Polls show that Trump's 100-day approval rating is the lowest in all US presidents in 80 years.

The US April one-year inflation rate is expected to hit a new high since January 1980, and the final value of the University of Michigan Consumer Confidence Index in April hit a new low since July 2022.

The Republican Party of the United States plans to abolish the U.S. audit regulator PCAOB. .

Summary of institutional views

ANZ: The Bank of Japan may remain calm when trade policy is uncertain

Tom Kenney, a senior international economist at ANZ Bank, said in a research report that the Bank of Japan is likely to keep interest rates unchanged at this week's meeting in a case of uncertain trade policy. He said that this uncertainty is expected to continue to heat up in the aihuatrade.coming months at least, meaning that the Bank of Japan is most likely not to raise interest rates anytime soon. Bank of Japan Governor Kazuo Ueda may adopt a cautious tone at a press conference and is expected to emphasize the need to pay close attention to developments to assess the impact of tariffs. ANZ Bank postponed its Bank of Japan's rate hike forecast from previous May and October 2025 to October and April 2026, respectively.

Goldman Sachs looks forward to Canadian election: Under this scenario, pressure on the Bank of Canada's interest rate cuts is expected to reduce GDP by 0.7% per year

Goldman Sachs pointed out in its research report that Canada will elect a new government on April 28 (next Monday). The latest poll shows that due to the influence of US President Trump's hostile rhetoric on Canada, the Liberal Party led by current Prime Minister Mark Carney has surpassed the Conservative Party led by Pierre Poillevre. The forecast market currently shows that the Liberal Party’s probability of winning is more than 80%.

The Liberal Party’s platform proposes to add 129 billion Canadian dollars in spending (about 1% of annual GDP) in the next four years to tax cuts (38 billion Canadian dollars), housing construction subsidies (16 billion Canadian dollars), infrastructure (42 billion Canadian dollars) and defense expenditures (18 billion Canadian dollars), and plans to hedge through 52 billion Canadian dollars in revenue (20 billion of which aihuatrade.comes from retaliatory tariffs). We estimate that the plan will increase Canada's GDP by an average annual growth of 0.6-0.7% over the next four years. The Conservative Party’s platform proposes new expenditures of similar scale (C$110 billion), including tax cuts (C$75 billion), housing construction subsidies (C$11 billion) and defense expenditures (C$17 billion), but more revenue offsets (C$89 billion) are expected to lead to a milder annual boost to GDP (0.2-0.3%).

Although the proposed measures may not be implemented,The victory of the Party may lead to a larger increase in spending, which helps offset the huge growth resistance brought by U.S. tariffs, while the Conservative victory may have a less impact on growth. Therefore, the Liberal victory will reduce the urgency of the Bank of Canada's further rate cuts and reduce the probability of the political interest rate falling below 2.25% (this level is both our terminal interest rate forecast and the lower limit of the Bank of Canada's neutral interest rate range).

Ulrich Leuchtmann, head of foreign exchange research at aihuatrade.commerzbank: Trump's threat is still there, and the risk of a sharp decline in the US dollar is "too high to be ignored".

Although it is unlikely that the US dollar will depreciate further sharply, it cannot be ruled out. Trump's policy has put pressure on the dollar through several channels: weakening the safe-haven position of U.S. Treasury bonds and raising concerns that the U.S. growth advantage may end. The dollar's status as the world's reserve currency is also under threat, while the Fed's independence remains worrying. The risk of a sharp weakening of the US dollar is "too high to be ignored", especially considering that the euro-dollar exchange rate has great upside potential. Even if the US dollar falls sharply, those who sell the US dollar must ensure that their positions are properly managed so as not to suffer unbearable losses.

UBS: The fate of parity in Europe and the United States has been reversed, and will hover between... in the next few months

The euro-dollar exchange rate hovered at the parity level at the beginning of the year. The market generally expects that the additional tariffs from the United States will support the strengthening of the US dollar. However, after only one quarter, the tariff policy instead shook the US dollar's position as a reserve currency, and the euro rebounded rapidly against the US dollar, rising to a maximum of 1.1573. In just three months, the situation has turned upside down.

In this trade war, each trading partner mainly faces three options: 1) Implement retaliatory tariffs 2) Restart negotiations 3) Boosting the domestic economy through fiscal or monetary policies. After the United States announced the increase in tariffs on April 2, most of the economies initially responded to countermeasures, and major economies have vowed to take reciprocal retaliation. We believe that tariff policies are harmful to the global economy and will ultimately lead to weak growth. After the retaliatory measures were introduced in early April, the market fell sharply.

Looking forward, we believe that the U.S. government has a strong incentive to reach an agreement with its major trading partners, otherwise the U.S. economy will face significant resistance. Japan is likely to become the first contract contract. With the signing of new trade agreements one after another, confidence in the dollar is expected to gradually recover. Therefore, after the euro surged from 1.02 to 1.14, we believe that the exchange rate is more likely to enter a consolidation phase than to continue to climb. It is expected that the euro and the US dollar will fluctuate between 1.12 and 1.16 in the next few months. With the signing of the trade agreement, the exchange rate is more inclined to the lower limit of the range.

In the medium term, the fate of the US dollar will depend on the outcome of tariff negotiations and the broader economic impact. Tariff policies may push up inflation and curbThe Federal Reserve is in a dilemma. If economic fatigue intensifies, we expect the Fed to respond by cutting interest rates - the extent of the interest rate cut will determine the degree of weakness of the US dollar. Overall, the "American Exceptionism" that has lasted for decades is facing increasingly severe doubts.

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