Dollar Rebounds as Trump Talks of Canada, Mexico Tariffs

By Wayne Cole

In the Asian markets on Tuesday, the dollar made a notable recovery after comments from U.S. President Donald Trump concerning potential tariffs on Canada and Mexico. Although the specifics of the tariffs were not fully outlined, Trump's remarks hinted at a possible 25% tariff that could be announced soon.

President Trump mentioned that his team is considering imposing such tariffs, which could become a reality as early as February 1. However, he did not provide further details during that announcement.

This statement caught many by surprise, as government officials had previously indicated that any new tariffs would be applied cautiously, aiming to lessen the burden on currencies that are heavily affected by trade. A following memo simply instructed relevant agencies to analyze and address ongoing trade deficits.

According to Shoki Omori, the chief global desk strategist at Mizuho Securities in Tokyo, the idea of a 25% tariff is quite significant as a starting point. He noted that market reactions were immediate, particularly in foreign exchange rates.

Market observers had typically anticipated that if Trump were to initiate tariffs, he might focus on China first with a range of 10% to 20%, possibly increasing later.

As a result of Trump's comments, currencies such as the Canadian dollar and the Mexican peso saw a rapid decline. This shift allowed the U.S. dollar to recover from losses it had incurred the previous day. The dollar rose by 1.2% to 1.4475 against the Canadian dollar and gained 1.3% against the peso.

The dollar also climbed 0.6% to reach 108.65 against the Japanese yen after having decreased by 1.2% in a significant drop the day before. This was noted as the worst daily loss since late 2023.

The euro decreased to $1.0364 after reaching an earlier high of $1.0434. The European Union has been recognized for holding a substantial trade surplus with the United States and is viewed as a primary target for potential tariffs proposed by Trump.

Moreover, the U.S. dollar recorded a 0.3% increase against the Japanese yen, bringing its value to 156.06 after previously hitting a five-week low at 154.90.

The yen had performed well the previous week, driven by rising expectations that the Bank of Japan would consider raising interest rates in its upcoming policy meeting scheduled for Friday.

Additionally, the dollar added 0.3% to trade at 7.2847 against other currencies. Trump has a history of suggesting tariffs of up to 60% against China in prior discussions.

Dollar, Tariffs, Trade