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Donald Trump sparked a fresh sell-off in exporting currencies hours after his inauguration as he threatened to hit Mexico and Canada with hefty tariffs.
Speaking in the Oval Office late Monday, Trump said he could impose tariffs of 25 percent against both countries as early as February 1, repeating earlier threats to hit two of the US’s closest trading partners with tariffs to retaliate for lax border security and fentanyl. trafficking.
Trump’s renewed warnings sent the Mexican peso down 1.3 percent and the Canadian dollar down 1 percent against the U.S. dollar in morning trade in Europe on Tuesday.
Both currencies had gained sharply a day earlier after administration officials said Trump would refrain from immediately imposing tariffs on key partners and instead study the trade situation.
The price swings highlight how investors are bracing for turmoil this week, particularly in currency markets, as Trump unveils plans to soften many of Joe Biden’s signature policies and enact a protectionist agenda that weaponizes America’s economic heft.
“This kind of volatility is the new normal,” said Eric Winograd, an economist at AllianceBernstein. “Policy under the Trump administration is likely to be less predictable and less process-oriented than what we’re used to with the Biden administration.”
A broad selloff in the greenback also eased after Trump’s comments on tariffs, with the dollar index, a measure of the currency against six peers, paring a 1.3 percent decline to trade 0.6 percent lower.
Futures tracking Wall Street’s S&P 500 and Nasdaq 100 indexes both opened up 0.4 percent. Both markets were closed for a US public holiday on Monday.
In a sign of how Trump intends to use trade restrictions as a key diplomatic tool, the new president hit out at the EU, threatening the bloc with tariffs unless it buys more US oil.
“They don’t take our cars, they don’t take our farm produce, they don’t take almost anything,” Trump said. “And yet, we take their cars and we take their farm produce, we take a lot of it. So we will figure this out either with tariffs or they have to buy our oil.”
The euro, which has the largest weighting in the dollar index, fell 0.6 percent against the greenback to $1.04, partially reversing a 1 percent gain on Monday.
Sterling fell 0.6 percent to $1.23 after rising 0.8 percent the previous day.
European stock markets were quiet in morning trade, with the FTSE 100 and Dax down 0.1 percent. The broad-based Europe Stoxx 600 rose 0.1 percent.
Wind companies fell after the Trump administration said it would freeze permitting and leasing of new wind projects. Danish turbine maker Vestas fell 2 percent, while Germany’s Nordex fell 3 percent.
Bitcoin prices, which briefly hit a new intraday high of $109,241 on inauguration day, then reversed gains after the president did not mention cryptocurrency policy in his inaugural address. Prices rose 0.1 percent to $102,660 per token.
In Asian markets, traders were relieved after Trump refrained from immediately implementing trade restrictions against China, although he warned he might do so if Beijing refused to give the US partial control over social media app TikTok.
The CSI 300 index of mainland-listed companies was flat and Hong Kong’s Hang Seng rose 0.9 percent.
The offshore renminbi also strengthened to a six-week high of Rmb7.25 to the dollar, before weakening to Rmb7.28.
“The short version is that we may have avoided the worst case scenario from a risk wealth perspective. There was no charge day for China,” said Jason Lui, head of Apac equity and derivatives strategy at BNP Paribas.
“The Chinese stock market (already) rallied on the inauguration after the Trump-Xi phone call over the weekend, which is why there is a more measured reaction.”
Reporting by Adam Samson and Harriet Clarfelt in New York, Aime Williams in Washington, Arjun Neil Alim in Hong Kong, Leo Lewis in Tokyo, Nic Fildes in Sydney and Mari Novik in London
