06:13 AM EST, 03/07/2025 (MT Newswires) -- MUFG maintains that the scale of the (USD) dollar depreciation that has unfolded this week also incorporates a degree of investor optimism over the extent to which the United States Trump administration will ultimately adopt tariffs on its global trading partners.

The bank noted that it hears very often from clients that President Donald Trump is a dealmaker, Trump is a negotiator and tariffs are only a tool in those negotiations -- the implication being that tariffs will be reined back quickly if and when adopted.

No doubt, the decision Thursday by the Trump administration to exclude USMCA-compliant products from the 25% tariffs on Mexico and Canada for a period through to April 2 April helps reinforce that view, stated the bank.

USD/MXN and USD/CAD dropped as expected on the news of another postponement given this is just a delay and given according to U.S. Commerce Secretary Howard Lutnick, about 50% of imported goods are now excluded, the impact is still not insignificant with more to potentially come, added MUFG.

The delay until April 2 -- the same day as the introduction of reciprocal tariffs -- increases further the importance of the date for the financial markets, wrote the bank in a note to clients.

It is very difficult for the markets to have any clarity on what reciprocal tariff action could look like given those rates could be determined not just by tariff rates on imports from the U.S. in the trading partner country but also by perceived barriers to trade, domestic sales tax rates and currency misalignments, pointed out MUFG. The actions that day could still be much more aggressive than currently assumed and so assuming that this week's foreign exchange move means the period for US dollar appreciation has passed could prove wrong.

What is clear is that the back-and-forth on trade tariff policy announcements can't be good for the U.S. economy and it is surely creating an incentive amongst businesses to retrench from decisions around hiring and business investments, according to the bank. Equity market divergence between the U.S. and elsewhere continues to highlight the bigger negative influence on equities in the U.S.