BUZZ-COMMENT-Dollar move is corrective, not yet a 2017 repeat

Feb 5 (Reuters) - With the tariff noise dying down, this has meant that the tariff risk premium built up in the dollar has continued to unwind.

While the pullback in the greenback appears to be more corrective in nature, the topping out of both U.S. yields and heavyweight tech stocks such as Nvidia does raise questions as to whether we are seeing the early innings of a broader reversal in the dollar, akin to that of 2017.

The credibility of U.S. President Donald Trump’s trade threats is likely to have taken a hit following the quick turnaround in a which tariff delay was agreed with both Canada and Mexico.

Consequently, should Trump once again threaten to impose tariffs on other countries, the announcement effect on the dollar is likely to be more contained with traders somewhat more reluctant to chase upside. Although it is still a net positive for the dollar, which does push against the view of a broader pullback.

As has been mentioned previously, crowded positioning has been a headwind for the greenback, and with the move away from the worst-case scenario, this has opened a window of opportunity for legacy to unwind. But given the capricious trade policy backdrop, it is difficult to look at the move in the dollar as anything more than a correction. This is unless we begin to see U.S. data deteriorating more sharply, which would lend itself towards a more dovish Fed outlook than is currently priced in 0#USDIRPR.

For now though, there are limits to the dollar downside. While the potency of Trump’s tariff threats have reduced, the risk still remains, which will therefore continue to provide a modicum of USD support.

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