Synopsis:

Danske Bank notes that despite some positive signals on US trade policy, markets remain skeptical and investors are likely to continue selling USD rallies in the near term.

Key Points:

• Peak Policy Uncertainty Unlikely:

  • The market may interpret recent developments as "peak uncertainty," but Danske remains doubtful, citing the short-lived relief after the initial 90-day tariff pause followed by new Chinese tariff hikes.

• USD’s Sensitivity to Trade Headlines:

  • Within G10, the USD shows the highest positive beta to tariff de-escalation headlines.

  • A return to more restrictive trade policies could prompt further USD selling.

• Investor Confidence Requires Consistency:

  • It would take a sustained period of benign, consistent US policy signals for confidence in US assets to recover meaningfully — a scenario Danske sees as unlikely in the near term.

• Positioning Bias:

  • As a result, investors are expected to remain inclined to sell into any USD rallies rather than buying dips.

Conclusion:

Danske Bank maintains a bearish near-term outlook for the USD, driven by persistent policy uncertainty and fragile investor confidence. Without a clear and sustained improvement in US policy signals, USD rallies are likely to be sold rather than extended.