Market Turmoil: Trump’s Tariff Threats Send Dollar Soaring
The US dollar staged a dramatic comeback on Tuesday, erasing its steepest decline in 14 months, after President Donald Trump hinted at imposing 25% tariffs on Mexico and Canada in February. This sudden shift in sentiment sent shockwaves through the global economy, with the Canadian dollar and Mexican peso plummeting around 1% against the greenback.
Tariff Uncertainty Sparks Market Jitters
The dollar’s resurgence is a testament to the heightened anxiety among traders, who are increasingly sensitive to any news related to tariffs and their far-reaching implications. Rodrigo Catril, strategist at National Australia Bank Ltd., noted that if 25% tariffs are indeed imposed on Mexico and Canada, it’s likely that even higher tariffs on China will follow suit. This scenario would likely propel the dollar even higher.
Volatility Becomes the New Normal
The Trump administration’s tendency to announce policy decisions via Twitter has created an environment of uncertainty, where markets are prone to wild swings. Alvin Tan, strategist at RBC Capital Markets, cautioned that volatility will be a regular feature of the market, as traders struggle to decipher the president’s off-the-cuff comments.
Global Currencies Feel the Heat
The Australian and New Zealand dollars, both sensitive to risk, also declined in value. Meanwhile, China’s offshore yuan fell 0.3% after initially gaining more than 1% in New York trading, as Trump’s tariff threats continue to loom over the nation’s exports. The People’s Bank of China has been working to support the yuan, setting the reference rate at its strongest level since November 8.
Navigating the Uncertainty
As the market grapples with the unpredictability of Trump’s policies, Serena Zhou, economist with Mizuho Securities Asia Ltd., advised traders to remain flexible. “It’s too hard trying to predict the uncertainty,” she said, highlighting the challenges of navigating this treacherous landscape.
Treasury Yields Take a Hit
Treasury 10-year yields dropped eight basis points to 4.55%, after falling as much as nine basis points earlier, as investors sought safe-haven assets amidst the turmoil.
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