Dollar Rebounds as Trump Hints at Tariffs on Canada and Mexico

The U.S. dollar strengthened in choppy Asian trading on Tuesday after President-elect Donald Trump suggested imposing tariffs on Canada and Mexico. His remarks came as a surprise to markets that had expected the new administration to begin its trade measures with China.

Trump’s Tariff Talk Moves Markets
Trump hinted at tariffs of up to 25% on Canadian and Mexican goods, potentially set to be announced on February 1. Although details were scarce, the suggestion of "measured" implementation provided some relief to trade-sensitive currencies.

Market reaction was swift:

The Canadian dollar dropped 1.2%, with USD/CAD reaching 1.4475.
The Mexican peso slid 1.3% against the dollar.
Shoki Omori, chief global desk strategist at Mizuho Securities, observed:

“The market assumed Trump would start with China, perhaps a 10-20% tariff on goods with a gradual increase. A 25% starting point for Canada and Mexico caught traders off guard.”

Dollar Index and Other Currencies
- The U.S. dollar index rose 0.6% to 108.65, recovering from Monday’s 1.2% loss, its sharpest daily decline since 2023. Other notable movements included:
- Euro: Fell to $1.0364, retreating from an earlier high of $1.0434.
- Japanese yen: The dollar gained 0.3% to reach 156.06 yen, recovering from a five-week low of 154.90 yen.
- Chinese yuan: The dollar added 0.3%, hitting 7.2847 yuan.

Trump has previously threatened tariffs of up to 60% on Chinese goods, but his initial focus appears to be on North American trade partners.

What’s Next?
The announcement of U.S. trade policies is adding to global market volatility as Trump’s inauguration approaches. With the Bank of Japan expected to meet on Friday, traders are closely watching for additional shifts in currency dynamics.