(Bloomberg) — The dollar rebounded from its biggest decline in 14 months as U.S. President Donald Trump said he may impose 25% tariffs on Mexico and Canada in February.
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Bloomberg’s dollar gauge rose 0.7% in Asia on Tuesday after trade fell in New York as headlines about new tariffs sparked a rush for the reserve currency. The Canadian dollar and Mexican peso fell about 1% against the greenback following the news.
“If 25% tariffs are imposed on Mexico and Canada, higher tariffs on China will surely follow soon after,” said Rodrigo Catril, a strategist at National Australia Bank Ltd. in Sydney. “The dollar has the opportunity to trade higher.”
The rising dollar highlights how nervous traders are about news about tariffs and their impact on the global economy. Increased volatility dominated headlines Monday over how the Trump administration would refrain from implementing tariffs immediately after his inauguration, causing turmoil in the $7.5 trillion foreign exchange market. day.
Yields on the 10-year Treasury fell eight basis points that day to 4.55%, after falling nine basis points earlier. The risk-sensitive Australian and New Zealand dollars also fell.
“Volatility caused by Trump’s off-the-cuff comments will be commonplace,” said Alvin Tan, strategist at RBC Capital Markets. “Trump likes to pontificate, but he doesn’t always follow through on his words. But the market cannot ignore them either.”
China’s offshore yuan fell 0.3% after gaining more than 1% in New York trading, as Trump previously threatened to impose tariffs on the country’s exports. The People’s Bank of China set the yuan’s benchmark rate at its highest level since November 8, a sign that it is strengthening its support for the currency.
“Be flexible, that’s the only thing I can think of right now,” Serena Zhou, an economist at Mizuho Securities Asia Ltd., said of currency trading. “It’s too difficult to try to predict uncertainty,” she said.
–With the help of Jaehyun Eom.
(Updates with analyst comment in 6th paragraph.)
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