Above: File image of Donald Trump. Image: Official White House distribution.
Citi predicts USD rebound in Q2.
The U.S. Dollar will benefit from a raft of tariff measures due to be announced on April 02.
The reciprocal tariff announcement will be the largest of Donald Trump's second term, with analysts anticipating significant implications for global financial markets.
"We maintain our forecasts for a USD rebound in Q2," says Daniel Tobon, a currency analyst at Citi. "Tariff risks look underpriced and we expect USD undervaluation to correct on a hawkish April 2 announcement."
The call suggests Citi see tariffs as being U.S. Dollar-positive, which marks a departure from recent price action that suggests otherwise.
The early March tariff rollout on Canadian and Mexican imports, as well as global steel and aluminium imports, prompted weakness in U.S. equity markets and the Dollar.
USD weakness flipped the assumption that tariffs support the Dollar onto its head.
However, Citi thinks the original playbook remains valid and tariffs will help the USD higher.
"The risk is if April 2 is less hawkish (e.g. VATs not considered, delayed implementation), which could mute any USD rebound," says Tobon.
On April 2, 2025, the U.S. plans to implement a series of reciprocal tariffs aimed at aligning U.S. import duties with those imposed by its trading partners.
For instance, if a country imposes a 20% tariff on U.S. goods, the U.S. will reciprocate with a 20% tariff on imports from that country.
But Trump also said he would impose tariffs on countries that impose VAT - which is the equivalent of the sales tax in the U.S.
VAT is clearly not a tax on imports as it does not discriminate against homegrown or foreign products and services. That it is in scope suggests Trump is looking to deliver a significant tariff of packages to raise revenue for the U.S. Treasury as he attempts to shrink the country's surging deficit.