Dollar Pares Losses as Trump Floats Canada, Mexico Tariffs
The dollar pared some overnight losses on Tuesday after U.S. President Donald Trump suggested the United States could impose tariffs on Canada and Mexico in the near future, challenging suggestions his policies would be more gradual.
Trump told reporters his team was thinking of tariffs around 25% that could be announced on Feb. 1, but offered no other specifics. He also floated the idea of universal tariffs, but said the United States was not ready for that yet.
The dollar had fallen sharply on Monday after Trump's first day included no specific plans on tariffs and officials signalled any new taxes would be imposed in a "measured" way, a major relief for trade-exposed currencies.
A following trade memo merely directed agencies to investigate and remedy persistent trade deficits.
A tariff of "25% looks high as a starter, and markets reacted quickly, especially in FX", said Shoki Omori, chief global desk strategist at Mizuho Securities in Tokyo.
"I think market participants thought Trump would start with China, with say a 10-20% tariff on goods but gradual increase."
The market reaction was a knee-jerk fall in the Canadian dollar and Mexican peso. The dollar climbed 0.6% to 1.4397 Canadian dollar and added 0.9% on the peso .
The dollar index edged up 0.2% to 108.210, having shed 1.2% overnight in what had been the sharpest daily loss since late 2023.
The euro eased back to $1.0389 , from an early top of $1.0434. The EU runs a sizeable trade surplus with the United States and has been seen as a major target for Trump's tariffs.
Talking to reporters on Monday, Trump said he would remedy the trade imbalance either through tariffs or by Europe buying more U.S. oil and gas.
"The first few hours of the Trump administration has underscored that policy environment will be dynamic once again and markets should brace for volatility," said Charu Chanana, chief investment strategist at Saxo in Singapore.
"Clearly, the markets celebrated too soon with tariff threats missing at the outset in Trump's inaugural speech."
The inauguration speech focused on emergencies in immigration and energy and a more expansionist foreign policy, including a pledge to take back the Panama Canal.
In his first term in office, Trump had a history of announcing imminent plans for policy proposals, including on healthcare and infrastructure, only for nothing to eventuate.
The dollar could not sustain a bounce on the Japanese yen and slipped 0.5% to a near five-week trough around 154.78 . The yen has been supported by growing expectations the Bank of Japan would raise rates at its policy meeting this Friday.
The dollar added 0.2% on the Chinese yuan to 7.2847 . Trump has in the past threatened China with tariffs of up to 60%, but was vague on his plans on Monday.
Beijing later set a stronger fix for the yuan, suggesting it was still inclined to not let the currency fall too quickly.
Source : Reuters
