TOKYO/SINGAPORE: 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 US President Donald Trump’s tariffs kicked off a trade war.
The US 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 US slapped Canada and Mexico with duties of 25 percent and China with a 10 percent 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 US trading partners, immediately vowed retaliatory measures, and China said it would challenge Trump’s levies at the World Trade Organization.
“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 US tariffs on Canada, Mexico and China of Feb. 4 was also much sooner than many had anticipated.”
Some investors expect that tariffs will boost US inflation, fuelling the view that interest rates could stay higher for longer and lending support to the dollar.
Markets pared expectations of rate cuts from the Federal Reserve in the wake of the tariff news, with futures roughly pricing a 54 percent chance of two cuts this year.
The US dollar advanced 0.34 percent to 7.34 yuan in the offshore market CNH=D3, 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 MXN= fell to its lowest in nearly three years at 21.2882 per US dollar and was last down 2.3 percent at 21.1540, while the Canadian dollar CAD=D3 slumped to 1.4792 per US dollar, a level not seen since 2003. The Canadian dollar was last 1 percent weaker at 1.4689 per US dollar.
The Australian dollar AUD=D3 hit a five-year low, while the New Zealand dollar NZD=D3 fell to its lowest since October 2022. The two Antipodean currencies are often used as liquid proxies for the Chinese yuan. AUD/
“Investors will be on tenterhooks to see whether any phone conversation today between President Trump and his counterparts in Canada and Mexico can yield any results in 24 hours,” said Chris Turner, global head of markets at ING.
“The FX market will then be looking at the fallout on equity markets. For example, do US equities fall enough to re-price a more dovish Fed easing cycle?”
US equity futures pointed lower on Monday.
The euro EUR= plunged as much as 2.3 percent to USD1.0125 – the lowest since November 2022 – as investors braced for tariffs on Europe from the Trump administration. The single currency was last down 1.16 percent at USD1.0242.
Trump said over the weekend that tariffs on the European Union would go ahead, but did not say when.
The greenback added as much as 1.1 percent to 0.9210 per Swiss franc CHF=EBS, the highest since last May, before trading at 0.9165 franc. Sterling GBP=D3 fell 0.7 percent to USD1.2312. Japan’s yen JPY=EBS was more resilient, roughly unchanged at 155.23 per dollar.
That left the dollar index =USD, .DXY, which measures the US currency against six other units, firmer at 109.48. It had touched a three-week high in early trading.
BitcoinBTC= was at USD95,660, sliding back below USD100,000 to its weakest in nearly three weeks. Ether ETH= fell sharply to its lowest since early November and was last at USD2,593.15.