The cost of a weaker dollar, tariff turbulence ahead for the travel industry and chip war reloaded

The USD has fallen 10% since Donald Trump’s inauguration, albeit due to investor distrust following erratic trade measures and attacks on Fed independence rather than deliberate policy moves. Despite mounting concerns, many investors will be forced to stay in US markets as there is no alternative to move the massive net international investment balance of USD28trn anywhere else. Yet, if even a fraction of these assets were leaving the US, it would lead to even larger distortions in exchange rates and global asset prices. Foreign exchange market volatility is therefore likely to remain elevated amid the news flow, but fundamentals suggest that the EUR/USD exchange rate may stabilize around 1.12 by year-end, with an asymmetric risk towards higher levels. Long-term valuations metrics would see the dollar weaken mostly against Asian currencies while European ones look fairly valued against the dollar.

President Trump’s renewed tariff push is casting fresh clouds over the airline industry, threatening to derail its fragile post-pandemic recovery. After strong revenue rebounds in 2023 (+23% y/y) and 2024 (+7%), airlines now face soaring aircraft costs (+16%) and limited supply, with deliveries still 10% below pre-pandemic levels and a record 17,000-plane backlog further worsening delays. The new tariffs threaten to make Boeing and Airbus’s complex supply-chains more expensive, with both having production facilities in the US and more than half of suppliers located abroad. At the same time, US-bound tourism – a key revenue driver – is cooling, with a -17% y/y drop from Western Europe in March and early Q1 airline load factors falling to 78% (from 84%). North American airlines now project the weakest 2025 revenue growth globally (+1% y/y) and are already reporting a -10% q/q decline in Q1 revenues. However, cooling jet fuel prices (-22% y/y) should cushion some of the blow.