Dollar Rebounds Amid Trump’s Tariff Talks with Canada and Mexico

By Wayne Cole

In recent Asian trading, the U.S. dollar showed signs of recovery on Tuesday after remarks from President Donald Trump hinted at possible tariffs on Canada and Mexico. This uptick occurred in a market known for its volatility.

During his comments, Trump mentioned that his administration was considering tariffs of around 25%, potentially to be announced on February 1. However, no further details were provided, which left many uncertainties in the market.

These surprising comments came against a backdrop of previous assurances that any new tax implementations would be approached cautiously, providing some relief to currencies sensitive to trade dynamics. Following Trump's remarks, a subsequent memorandum instructed relevant agencies to examine the consistent trade deficits.

"A 25% tariff seems quite high as a starting point, and markets responded swiftly, particularly in foreign exchange trading," noted Shoki Omori, chief global desk strategist at Mizuho Securities in Tokyo.

Market observers had anticipated that Trump might begin with China, possibly imposing a lower tariff in the range of 10-20% with plans for a gradual increase. Instead, the announcement affected the Canadian dollar and the Mexican peso, leading to a decline in their values and subsequently allowing the dollar to recover some of the losses it experienced the previous day.

The dollar appreciated by 1.2%, reaching 1.4475 Canadian dollars, while it climbed 1.3% against the peso. Additionally, the dollar rose 0.6% to 108.65 yen after having fallen by 1.2% overnight, marking its sharpest daily decline in recent months.

The euro also faced a drop, settling at $1.0364 from an earlier high of $1.0434. Given that the European Union enjoys a significant trade surplus with the U.S., it has been seen as a potential target for Trump's tariff measures.

Furthermore, the dollar added 0.3% against the Japanese yen, reaching 156.06 after a brief dip to a five-week low at 154.90. The yen had previously gained ground as expectations grew that the Bank of Japan might raise interest rates during its policy meeting scheduled for this Friday.

Overall, the dollar continued to gain against various currencies, adding 0.3% to 7.2847 against the Chinese yuan. Trump has previously expressed intentions to impose even higher tariffs, with threats of up to 60% against China.

dollar, tariffs, trade