just now
Over the past few weeks, I’ve been closely following the mounting pressure on the US dollar, and what I'm seeing now feels eerily familiar to the early warning signs we had at the start of the year.
While the headlines may seem calm on the surface, there’s a subtle storm building underneath, and I believe we’re about to see a shift in market sentiment that many aren't fully prepared for.
Let me break down what I’m seeing, and what it could mean for the FX market in the coming weeks.
1. The Tariff Narrative Isn’t Over, It’s Just Evolving
At first, it looked like the US administration was dialing things back. Some trade deals were announced, certain tariffs were revised or delayed, and the dollar clawed back some ground. But that relief seems temporary.
More recently, chatter about new tariffs, particularly on critical sectors like pharmaceuticals and semiconductors, is picking up again.
Markets hate uncertainty, and tariffs inject a very specific kind of economic drag that’s hard to quantify in advance.
What worries me most is that we’re now seeing political messaging that these tariff increases could scale sharply over the next 12 to 18 months.
If that plays out, I expect capital to shift more defensively, putting further downward pressure on the dollar.
2. Labour Market Cracks Are Now Harder to Ignore
The US jobs market had been a source of resilience earlier this year, I was watching the Non-Farm Payrolls (NFPs) closely and saw decent prints in the second quarter.
But that trend may have ended. We’ve now had three consecutive NFP reports coming in below 100k, historically, that kind of pattern tends to precede recessions. That’s not just a blip. It’s a pattern.
Couple that with falling service sector employment and rising signs of political interference in key economic institutions, and you have a very fragile backdrop.
Investor confidence in the integrity of the US economic data process is not something we often question, but if that begins to erode, volatility will spike, and USD sentiment will suffer.
3. Yen Strength Has More Room to Run
If the dollar’s trajectory is downward, where could we see relative strength? Right now, my eyes are on the Japanese yen.
After the last payrolls release, the yen rallied sharply. It’s been one of the top performers in August so far, and the momentum could continue, especially if the Bank of Japan bows to political pressure and adopts a more hawkish stance.
Of course, there are still risks: political uncertainty in Japan and yield curve volatility could limit gains in the short term.
But structurally, with core inflation remaining high and real wages still negative, I believe the domestic political push for a stronger yen will only grow louder. That’s a medium-term theme I’ll be watching.
My Takeaways as a Trader
Here’s how I’m thinking about positioning right now:
Short USD exposure still makes sense, especially if we continue to see softness in US employment data and renewed tariff escalation. Just like long GBPUSD that we got on the webinar live yesterday and is already over 76pips.
Long JPY has potential, not just as a safe haven, but as a fundamental play if the BoJ starts to tighten faster than markets expect.
Stay tactical, I’m focused on the upcoming US inflation releases, 10Y auctions, and key Fed speeches this week. Any dovish tilt or surprise weakness could reinforce the move away from USD.
There’s a saying I’ve always liked: “Markets don’t wait for confirmation, they move on expectations.” Right now, I see expectations quietly shifting.
Tariff risks, labour market softness, and rising political interference are creating a new narrative, and it’s one that could bring the dollar back under pressure.
Let’s see how the next data prints unfold, but I’m ready to adapt fast.
1. What impact do tariffs have on the US dollar?
Tariffs create uncertainty and often weaken the US dollar by slowing global trade, increasing costs for American businesses, and potentially reducing economic growth. When new or higher tariffs are expected, investors tend to reduce exposure to USD in anticipation of slower momentum and risk-off sentiment.
2. Why are three consecutive weak NFP prints concerning for traders?
Historically, three monthly Non-Farm Payroll reports below 100k signal a potential economic downturn. This pattern reflects a weakening labor market and often precedes broader slowdowns, making it a key early warning for recession risks and dollar weakness.
3. Why is the Japanese yen strengthening lately?
The yen is gaining strength due to a combination of factors: softening US data, potential Bank of Japan tightening, and political pressure in Japan to strengthen the currency to combat inflation. Its role as a traditional safe haven also plays a role during risk-off periods.
4. Is the market underestimating the return of tariff risks?
Yes, in many ways. While some deals were signed earlier in the year, fresh rhetoric and upcoming tariffs on key sectors like semiconductors and pharma suggest that trade tensions are far from over. The market may need to reprice those risks quickly.
5. What’s the best FX setup in this current environment?
From my view, long JPY vs. USD is a strong contender. It offers both fundamental and macro tailwinds: resilient Japanese political pressure for yen appreciation, plus signs of slowing momentum in the US. However, staying nimble and data-driven is key.
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