A look at the day ahead in U.S. and global markets from Mike Dolan
Any speculation that U.S. President-elect Donald Trump would adopt a ‘softly, softly’ approach to his trade and economic policies was jolted overnight as he warned of immediate tariff hikes on Canada, Mexico and China – hitting the currencies of all three.
Trump, who takes office on Jan. 20, said he would impose a 25% tariff on imports from Canada and Mexico on day one until these countries clamp down on drugs, particularly fentanyl, and undocumented migrants crossing the border. The move would appear to violate a free-trade deal with both countries that he negotiated during his first White House term.
Trump also separately outlined “an additional 10% tariff, above any additional tariffs” on imports from China.
It was not entirely clear what this would mean for China as he has previously pledged to end China’s most-favoured-nation trading status and slap tariffs on Chinese imports in excess of 60% – much higher than those imposed during his first term.
Currency markets quickly adjusted to try account for the risk of these moves in less than two months’ time.
The U.S. dollar surged more than 1% to a four-and-a-half-year high against its Canadian counterpart and more than 2% against the Mexican peso. And the greenback also rose to its highest since July 30 against China’s yuan
Together, the peso, Canadian dollar and yuan account for more than 40% of the Federal Reserve’s ‘broad’ dollar trade-weighted basket of currencies.
China’s embassy in Washington responded to Trump’s comments by saying on neither country would win a trade war.
Other currencies also fell against the greenback but the moves had moderated by early trading in Europe.
The fact that Trump didn’t yet mention Europe or Japan as part of the ‘day one’ plan allowed the euro, which hit a two-year low on Friday, to hold on to Monday’s bounce and the yen held up as well.
European Central Bank policymaker Mario Centeno warned that the euro zone must be watchful to avoid inflation undershooting ECB’s 2% target amid rising economic risks such as likely new U.S. trade tariffs – that are “not good news for Europe”.
TREASURY TRANSITION
Trump’s barrage of policy pledges on his social media account late on Monday came just as investors had warmed to the nomination of Wall Street money manager Scott Bessent as Treasury Secretary, hoping for a market-savvy influence on the administration and potentially a voice of restraint.
