Market Analysis

Dollar Rebounds on Trump’s Tariff Talk, Easing Losses

Amos Simanungkalit · 21 Jan60.8K Views

Image Credit: Reuters

The dollar rebounded in volatile Asian trading on Tuesday after U.S. President Donald Trump hinted that the United States could soon impose tariffs on Canada and Mexico, though he provided few details.

Trump mentioned that his team was considering tariffs of around 25%, which could be announced by February 1, but offered no further specifics. His comments caught markets by surprise, especially after earlier indications that any new tariffs would be implemented in a more gradual manner, offering relief to currencies sensitive to trade policy. A follow-up memo simply instructed agencies to address ongoing trade deficits.

“A 25% tariff seems high as an initial move, and markets reacted quickly, particularly in FX,” said Shoki Omori, chief global desk strategist at Mizuho Securities in Tokyo. “Market participants likely expected Trump to start with China, perhaps imposing a 10-20% tariff on goods with gradual increases.”

The announcement led to a sharp drop in the Canadian dollar and Mexican peso, which in turn allowed the dollar to recover from losses sustained the previous day. The dollar rose 1.2% to 1.4475 Canadian dollars and gained 1.3% against the peso.

The dollar index bounced 0.6% to 108.65, recovering from a 1.2% drop on Monday, the sharpest daily decline since late 2023.

The euro retreated to $1.0364, down from an earlier high of $1.0434. Given the EU’s large trade surplus with the U.S., it has been viewed as a potential target for Trump’s tariffs.

The dollar also regained 0.3% against the Japanese yen, climbing to 156.06, after reaching a five-week low of 154.90 earlier. The yen had gained ground last week due to rising expectations that the Bank of Japan would raise rates at its upcoming policy meeting.

Additionally, the dollar strengthened by 0.3% against the Chinese yuan, reaching 7.2847. Trump has previously threatened China with tariffs as high as 60%.