Dollar Rises as Trump Tariffs Hit
The dollar surged, oil surged and equity markets turned red after U.S. President Donald Trump made good on his threat to impose tariffs on Canadian, Mexican and Chinese exports.
U.S. Treasury yields rose while stock futures slumped, and a gauge of Asia-Pacific stocks also fell in response to the punitive measures taken against some of America’s biggest trading partners. The Canadian dollar slumped to its weakest level since 2003, with the euro and Mexican peso also posting losses.
The rapid escalation in tensions has prompted a flight to safe-haven assets as investors brace for the knock-on effects of Trump’s moves on everything from inflation to geopolitics and economic growth. While Trump has long vowed to impose broad trade levies to combat issues such as illegal immigration and illegal drugs, global stocks have rallied on anticipation that tariffs would be delayed or avoided as officials try to negotiate a deal. “Markets need to structurally and significantly re-price the trade war risk premium,” wrote George Saravelos, head of FX research at Deutsche Bank. “For Canada and Mexico, we see this trade shock — if sustained — as a much bigger economic shock than Brexit in the U.K.”
Behind the dollar’s rally are bets that tariffs will stoke inflationary pressures and keep U.S. interest rates high, while also hurting foreign economies more than the U.S. and adding to the greenback’s appeal as a safe haven. Foreign currencies have been hit as U.S. demand for more expensive imports has slumped. Traders are wary of big swings in stocks in sectors seen as the front lines of any trade war. A basket of UBS Group AG stocks at risk from the proposed tariffs plunged on Friday on concerns the levies would stoke inflation and hurt earnings.
Source: Bloomberg
