FOREX: Greenback Holding onto Moderate Declines Post-Fed Decision

• SF Fed staff research finds that across-the-board 25% tariffs would see a 9.5% increase in near-term prices for investment goods and 2.2% for consumption goods assuming full pass through to finished goods.
• Their research focuses on the near-term direct effects and doesn’t allow for dynamic adjustments including responses of importers, domestic producers, consumers or policymakers as well as potential exchange rate adjustments.
• The analysis includes a breakdown of imported consumer and investment goods and their current reliance on China, Mexico, Canada, the EU and the rest of the world.
• This is useful considering the heterogeneity seen in US tariff policy over the past two months. Recall the push to much larger tariffs on China than all other trading partners on Apr 9, which of course has been mostly reversed with the significant de-escalation in US-China trade policies following trade discussions at the May 17-18 weekend.  
• 25% tariffs on China specifically would add ~0.3pp to PCE prices and closer to 1.5% for private investment equipment (PEQ) prices. Both these figures would be higher in the case of 25% tariffs on Mexico. 

Monday's $76B 3-month bill auction turned out to be uneventful.Some had eyed it as a potential warning sign ahead of an "x-date" window in mid-August, after a poor auction a week earlier, but the auction results didn't bear this out. 

• The high yield of 4.285% was 1.5bp below May 12's sale, and bid-cover was the highest in 4 auctions at 2.76x. Indirects rose to 59.7% from 48.7% prior (last week's saw one of the lowest % in the last couple of years), with primary dealer takeup dropping to a fairly typical 35.8% (46.6% last week was the highest of 2025).
• On the other hand, potentially of note, the low rate was the highest of the year at 4.18%, up 3bp.
• There remains a very modest bump higher in Aug/early Sept bill yields vs the rest of the curve (about  5-6bp - the high bid yield is 4.374%) indicative of a slight risk premium against x-date risks.
• Per Tsy Sec Bessent earlier this month: "there is a reasonable probability that the federal government's cash and extraordinary measures will be
   exhausted in August while Congress is scheduled to be in recess."
• As we noted last Friday, The "extraordinary measures" plus cash available to Treasury to stave off a debt default were around $644B as of late last week. 

SNB Chairman Schlegel appears overall rather pessimistic on the economic outlook in Switzerland in today's speech at the University of Lucerne. The Swiss franc was little changed as he spoke. Some key highlights as quoted by Bloomberg:

• "SNB tolerates negative inflation rate in short term" (Schlegel mentioned in the last SNB press conference that the inflation rate can temporarily move into negative territory for individual months.)
• "Inflation outlook is very uncertain".
• "Swiss 2025 growth will be lower than expected". (The latest SNB Swiss growth forecast for 2025 was 1.0-1.5%. Q1 Q/Q (sports-adjusted) growth was already 0.7%)
• Schlegel added: "Tariff situation very challenging for some firms [...] Uncertainty is toxic for growth"
• "Can't rule out use of negative rates again if needed"
• "Franc is bought by domestic and foreign investors"
• "Too much gold on balance sheet not an advantage"
• "There is currently no alternative to US treasuries"