FX Weekly: Dollar falters as fiscal and trade policy concerns grow

President Trump’s recommendation of a 50% tariff on the EU gave the dollar only a short-lived boost and the DXY index is still on track to snap a four-week ‘winning’ streak. This looks likely to be the largest weekly decline since early April and, as was the case back then, this has come despite yield gaps generally shifting in favour of the US. This unusual combination, paired with US equities falling back and again generally underperforming those elsewhere this week, seems to be indicative of rising US risk premia amid growing fiscal concerns. But our sense is still that US-specific risk premia will unwind and that the dollar will rebound over 2025.