MUFG: We expect limited USD upside as tariff de-escalation faces structural hurdles

MUFG expects the US greenback to see solely modest good points following indicators of tariff de-escalation, citing lingering investor warning, skepticism about US coverage stability, and shifting yield dynamics—particularly favoring the yen medium-term.

Key Factors:

• Tariff Optimism Priced In:
  Constructive US feedback on de-escalation have boosted the greenback, however FX response possible capped, with a lot of the optimism already mirrored in markets.

• JPY Outlook Bettering:
  Regardless of near-term underperformance, the yen is structurally supported by rising JGB yields (30Y at 25-year excessive close to 3%) and lowered incentives to hedge USD publicity.

• Greenback Headwinds Stay:
  Even when tariffs ease, harm to investor confidence and world positioning has already occurred. Any rebound in threat urge for food will possible be measured.

• Coverage Credibility in Query:
  Given the unpredictability of President Trump’s commerce coverage strategy, buyers are more likely to stay cautious in decoding any deal headlines.

Conclusion:

Whereas commerce optimism has provided a short-term raise to the USD, MUFG sees the scope for additional good points as restricted, with investor skepticism, structural yen assist, and coverage uncertainty capping broader greenback upside.

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