The Trump administration, facing mounting political and economic strain from its tariff policies, is beginning to reverse course. Private sector outcry and White House pressure have underscored the tariffs’ unintended consequences, revealing more drawbacks than benefits. Tariffs aimed at boosting tax revenue or re-industrialising the US by promoting local production are proving misguided. Forcing households to pay premiums for domestic goods ignores the complexity of shifting production across borders. Even if successful in increasing US manufacturing output, the tariffs would, by definition, curtail trade and yield minimal revenue.
All the while, economic warning signs are intensifying, with recession indicators flashing red. Leading a struggling economy risks eroding public support, a critical concern for Republicans eyeing the 2026 midterms. A severe economic downturn could derail their political strategy. Recognising this, Trump may adopt a more pragmatic approach, scaling back tariffs further. By renegotiating trade deals, he could frame such moves as victories while fostering constructive outcomes.
Key US economic data, due this week, will shed light on the tariffs’ backdrop. Beyond monthly labour market updates, Q1 advanced GDP figures will offer a broader view. Though not fully reflecting the tariffs’ impact, they may capture pre-emptive corporate adjustments. Markets expect modest GDP growth of 0.2% q/q, down sharply from Q4’s 2.4%. A negative reading looms as a real possibility, which could further pressure the administration. However, weak data might be the final push needed to temper Trump’s tariff stance, align policy with economic reality and avert deeper fallout.
ZAR Markets
After coming under some pressure through the second half of last week, the rand appreciated on the back of a retreating dollar during holiday-thinned trade yesterday. The USD-ZAR is trading back below 18.6000 this morning, having unsuccessfully tested a break below 18.5000. The GNU’s cohesion and upcoming budget talks increase the likelihood of a responsible, fiscally sound South African budget, paving the way for overdue reforms and fiscal consolidation. Investors will reward bold changes, but the time to act is now. In the meantime, the USD-ZAR may continue to consolidate around 18.5000, finding the bulk of its directional inspiration from international developments this week.
Global FX Markets
The U.S. dollar struggled to recover from recent losses on Tuesday amid continued uncertainty over the U.S.-China trade war. Treasury Secretary Scott Bessent said China must take the lead in de-escalating tariffs, conflicting with President Trump’s claims of progress. Beijing denied recent contact between Trump and President Xi, further unsettling markets. The dollar remained weak against the yen and Swiss franc, despite minor rebounds. Sentiment improved slightly after the U.S. announced plans to reduce automotive tariffs. Analysts see little chance of a near-term trade deal and expect a prolonged trade war. The euro remained strong, poised for its biggest monthly gain against the dollar in nearly 15 years. Sterling hovered near a three-year high, while the dollar index stabilized after a significant drop. Investors are watching closely for upcoming U.S. economic data, including jobs figures and inflation, which are expected to reflect trade war damage. Other currencies, including the Canadian, Australian, and New Zealand dollars, saw limited movement.