The dollar surged on Monday, pushing its Canadian counterpart and the Mexican peso to multi-year lows while China’s yuan slumped to a record trough in offshore trade after U.S. President Donald Trump’s tariffs kicked off a trade war.
According to Reuters, the U.S. dollar’s gains were broad, with the euro also touching a more than two-year low and the Swiss franc – despite typically acting as a safe haven – initially sliding to the weakest since May.
As Trump had promised last month, the U.S. slapped Canada and Mexico with duties of 25% and China with a 10% levy at the weekend, calling them necessary to curb immigration and narcotics trafficking.
The tariffs are due to take effect at 12:01 a.m. ET (0501 GMT) on Tuesday.
Canada and Mexico, the top two U.S. trading partners, immediately vowed retaliatory measures, and China said it would challenge Trump’s levies at the World Trade Organisation.
“The surprise for markets … is that Canada and Mexico retaliated immediately and that others, i.e. China and the EU, may follow their lead, resulting in a sharp contraction in global trade,” said Tony Sycamore, a market analyst at IG.
“The starting date of U.S. tariffs on Canada, Mexico and China of Feb. 4 was also much sooner than many had anticipated.”
Some investors expect that tariffs will boost U.S. inflation, fuelling the view that interest rates could stay higher for longer and lending support to the dollar.
CIO says he would be “surprised” if tariffs stay in place
Markets pared expectations of rate cuts from the Federal Reserve in the wake of the tariff news, with futures roughly pricing a 54% chance of two cuts this year.
The U.S. dollar advanced 0.34% to 7.34 yuan in the offshore market, having earlier pushed to a record high of 7.3765 yuan. Markets in China remain closed for the Lunar New Year and will resume trading on Wednesday.
The Mexican peso fell to its lowest in nearly three years at 21.2882 per U.S. dollar and was last down 2.3% at 21.1540, while the Canadian dollar slumped to 1.4792 per U.S. dollar, a level not seen since 2003. The Canadian dollar was last 1% weaker at 1.4689 per U.S. dollar.
(Reuters)
