Trump’s Tariff Threats Send Dollar Soaring
A Shift in Trade Policy
The US dollar experienced a significant rebound on Tuesday, recovering from its largest daily percentage drop in 14 months. This sudden surge was triggered by President Donald Trump’s suggestion that the US could impose tariffs on Canada and Mexico by February 1.
Tariffs on the Horizon
Trump hinted at implementing tariffs of around 25% on imports from Canada and Mexico, citing concerns over illegal immigrants and fentanyl crossing into the country. He also floated the idea of a universal tariff, although he noted that the US was “not ready” for such a move.
Market Reaction
The dollar’s sharp decline on Monday was attributed to Trump’s lack of specific plans on tariffs, leading to a sense of relief among trade-exposed currencies. However, the latest developments have introduced a new level of uncertainty, causing the dollar to rise 0.32% to 108.33.
Currency Fluctuations
The euro fell 0.22% to $1.0391, while sterling weakened 0.26% to $1.2291. The Canadian dollar and Mexican peso also suffered losses, dropping 0.8% and 0.86%, respectively.
Trade Imbalance Remedies
Trump emphasized his commitment to addressing trade imbalances, either through tariffs or by encouraging Europe to purchase more US oil and gas. A subsequent trade memo directed agencies to investigate and remedy persistent trade deficits, with reports due by April 1.
Analyst Insights
Erik Bregar, director of FX & precious metals risk management at Silver Gold Bull, noted that the dollar’s positioning is long enough to attract smart investors betting on a turn. Analysts at Jefferies view the trade memo as a “blueprint for what to expect next on tariffs.”
Japanese Yen Strengthens
The dollar weakened 0.11% against the Japanese yen, which has strengthened in three of the last four sessions. Expectations of a rate hike by the Bank of Japan on Friday have supported the yen’s growth.
Chinese Yuan Fix
The dollar strengthened 0.23% against the offshore Chinese yuan, despite Trump’s threats of tariffs up to 60%. Beijing set a stronger fix for the yuan, indicating its willingness to prop up the currency.
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