Tariffs Rattle Canadian and Mexican Currencies, US Data Knocks Dollar
The Canadian dollar and Mexican peso fell to one-month lows after U.S. President Donald Trump levied steep tariffs on the countries, although a fall in the U.S. dollar on the back of weak economic data limited the broader impact on Tuesday.
Trump's new 25% tariffs on goods from Mexico and Canada took effect, along with a doubling of duties on Chinese goods to 20%, at 12:01 a.m. EST (0501 GMT).
Minutes later, China said it will impose additional tariffs of 10%-15% on certain U.S. imports from March 10. Canada has already said that retaliatory tariffs on the United States would take effect on Tuesday and Mexico is expected to follow suit.
Market moves were fairly muted in the immediate aftermath of the tit-for-tat tariff actions, although worries of a wide-ranging trade war hit stocks hard on Monday.
The Canadian dollar was around 0.3% stronger at 1.4438 per U.S. dollar, having hit a one-month low of 1.4542 late on Monday.
The Mexican peso was last down roughly 0.9% at 20.89 per dollar, its lowest since February 3.
Analysts said many in the market were hoping tariffs might quickly be lifted if deals can be struck, much as the initial threat of levies against Canada and Mexico was halted in February.
Although tariffs might be expected to boost the U.S. dollar, recent weak economic data has weighed on the currency and bond yields in the United States.
The U.S. dollar index , which tracks the currency against six peers, was last down 0.22% at 106.3, around its lowest in three months.
The euro perked up, reflecting the lack of tariffs on the European Union and a sharp narrowing of the gap between U.S. and euro zone bond yields, which has made the dollar less attractive.
It was last up at 0.22% at $1.0511, not far from its highest since mid-December.
Euro zone government bond yields have risen relative to those in the United States as Trump's pullback from supporting Ukraine has stirred expectations of higher borrowing and spending on defence. Yields move inversely to prices.
Investors are also keeping an eye out for the European Central Bank policy meeting on Thursday, with traders pricing in another 25 basis point cut.
U.S. 10-year Treasury yields fell to their lowest level since October on Tuesday at 4.115% after the ISM manufacturing survey laid bare companies' fears about tariffs.
Sterling rose to an 11-week high of $1.2724 as the dollar slipped and was last up 0.1%.
Trump said on Monday he told leaders of Japan and China they cannot continue to reduce the value of their currencies as doing so would be unfair to the United States.
Trump's criticism of a weak yen and uncertainty on how his tariff threats could affect global growth may complicate the Bank of Japan's decision on how soon to raise interest rates.
On Tuesday, the yen was around 0.4% stronger at 148.85 per dollar, close to the four-month high it touched last week.
China's yuan ticked slightly higher to 7.2735 to the dollar, aided by the central bank continuing a strengthening bias in its daily official guidance.
Source : Reuters
