Dollar Rebounds as Trump Talks of Canada, Mexico Tariffs

By Wayne Cole

SYDNEY (Reuters) - The dollar showed a comeback during a turbulent trading session in Asia on Tuesday after U.S. President Donald Trump hinted that the U.S. might soon impose tariffs on Canada and Mexico. However, he did not provide detailed information about these potential tariffs.

Trump mentioned that his team was considering tariffs of about 25%, which could be revealed on February 1. Yet, he did not elaborate further on the specifics of these tariffs.

This announcement surprised many, especially since government officials had previously indicated that any new tariffs would be applied in a "measured" manner. This earlier assurance had offered some relief to currencies that are sensitive to trade factors. Following the initial remarks, a subsequent memo directed relevant agencies to examine and address ongoing trade imbalances.

"A 25% tariff seems quite steep to begin with, and the market reacted swiftly, particularly in the foreign exchange sector," commented Shoki Omori, chief global desk strategist at Mizuho Securities in Tokyo.

"Many in the market believed that Trump would start imposing tariffs on China first, perhaps a range of 10-20%, with plans for gradual increases," he added.

The immediate market reaction to Trump's remarks was noticeable, causing a sharp decline in the Canadian dollar and Mexican peso, which in turn allowed the U.S. dollar to recover some of its losses from the previous day. The U.S. dollar surged by 1.2% to reach 1.4475 Canadian dollars and gained 1.3% against the peso.

The dollar also increased by 0.6% against the Japanese yen, reaching 108.65, after it had previously experienced a significant drop of 1.2% in one of the worst daily performances since late 2023.

Meanwhile, the euro dipped to $1.0364, falling from an earlier high of $1.0434. The European Union maintains a considerable trade surplus with the United States and has been widely regarded as a potential target of Trump's tariffs.

Additionally, the dollar appreciated by 0.3% against the Japanese yen, settling at 156.06 after touching a five-week low of 154.90 in earlier trading.

The yen gained some strength last week amid growing speculation that the Bank of Japan could announce a rate increase during its upcoming policy meeting this Friday.

Overall, the dollar's performance was strengthened by Trump's comments about potential tariffs, particularly as they could impact trade relations with Canada and Mexico.

Dollar, Tariffs, Trade