The U.S. dollar strengthened against nearly all of its Group-of-10 peers after President Donald Trump announced his consideration of enacting previously threatened tariffs of up to 25% on Canada and Mexico, starting February 1. The greenback surged while Asian stocks briefly erased earlier gains in response to the news, with markets reacting to the heightened uncertainty around trade policies.
Trump’s comments, made in response to questions from reporters at the Oval Office, indicated that tariffs would be applied to Mexico and Canada over their immigration policies, citing concerns over “vast numbers of people” entering the U.S. The president also added that the tariffs would come into effect on February 1, signaling a firm stance on his “America First” agenda.
“While there was some hope that the tariff situation might ease, the latest comments show that tariffs are not averted but merely delayed,” said Charu Chanana, chief investment strategist at Saxo Markets. “It seems that the focus is shifting toward Canada and Mexico, with China negotiations remaining ongoing, potentially offering some support for Chinese markets.”
Bloomberg’s dollar gauge rose as much as 0.7%, reflecting investor sentiment reacting to the anticipated tariff imposition. Meanwhile, the Canadian dollar fell 0.9% and the Mexican peso slid 1.1% as markets priced in the potential impact of the tariffs on their economies.
U.S. Treasury yields also dropped, with the 10-year yield declining by 7 basis points to 4.55%. This shift in bond yields is indicative of market nervousness over the prospect of escalating trade frictions, even as the market awaited further executive orders from the Trump administration.
The initial optimism surrounding Trump’s inauguration and hopes for more business-friendly policies seemed to wane as the reality of his tariff plans began to take shape. Investors had been on edge for months, concerned that new tariffs could further disrupt global trade, as seen in the recent swings in the value of the Australian dollar and European equities.
Despite the immediate market turmoil, investors are still closely watching the developments in trade negotiations with China. While Trump’s comments focused on Canada and Mexico, there are expectations that the administration will engage in talks with China to address trade imbalances and tariffs. These ongoing discussions could provide a degree of market stability, particularly for Chinese stocks, which had been affected by the earlier tariff threats.
In the meantime, markets remain on high alert for further executive actions from President Trump, with the potential for more volatility as his “America First” policies begin to unfold. The global economic outlook is clouded with uncertainty, but the dollar’s strength, particularly against the Canadian and Mexican currencies, underscores the shifting dynamics in global trade relations.
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