Kyle Hulett Co-Head: Investments at Sygnia
Global markets showed signs of recovery in May, and the US dollar strengthened following announcements of key trade agreements.
- UK: The US will maintain a 10% baseline tariff on UK exports.
- China: China agreed to cut tariffs on US goods to 10% for 90 days, while the US reduced tariffs on Chinese goods to 30%.
- Middle East: President Trump accepted a luxury Boeing 747-8 aircraft valued at approximately $400 million from Qatar’s royal family, raising constitutional questions.
- European Union (EU): The stakes have risen in the EU, with Trump stating that decisions were “going nowhere” and threatening 50% tariffs from 1 June. After a call with Ursula von der Leyen this was delayed until 9 July.
- Japan: Japan is also pushing for a more comprehensive deal, seeking the complete removal of the 25% tariff on Japanese car imports.
Even with the temporary tariff pause between the US and China and excluding EU tariffs of 50%, the average effective US tariff rate stands at about 13%. JPMorgan forecasts that core inflation (CPI) could rise to 7% in the coming months.
Tariffs alone are insufficient to revive US manufacturing, which now accounts for less than 10% of GDP and offers wages below the national average. A weaker US dollar would be an easier path, as it would make the US more competitive, reduce the trade deficit and stimulate growth. Bessent supports a stronger dollar but has criticised other countries for artificially weakening their currencies. There have been rumours of a Mar-a-Lago Accord, under which Trump would endorse a weaker dollar.
Moody’s joined Fitch (2023) and S&P (2011) in lowering the US from its top triple-A status. The downgrade cited declining fiscal metrics despite economic strengths. Part of the fiscal concern is Trump’s “big, beautiful” tax bill, estimated to add $3.8 trillion to public debt over the next decade. Unlike the 2011 S&P downgrade, which led investors to flock to US Treasuries and supported stocks and lowered bond yields, the current environment has seen a weakening dollar and rising bond yields.
Rising inflation, falling growth, aggressive fiscal policy and credit downgrades have pushed bond yields higher and weakened the dollar. While Trump may not explicitly (or even secretly) want a weaker dollar, his actions are creating one.
ENDS
