Stock Gains and Currency Chaos Follow U.S. Tariff Reprieve

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U.S. equity futures surged, and currency markets experienced some of their most volatile movements in years after the U.S. postponed planned tariffs on Canada and Mexico at the last minute. However, tariffs on China are still set to take effect within hours.  

S&P 500 futures climbed 0.6%, while the dollar reversed earlier gains against the Mexican peso and Canadian dollar. The latter saw its biggest daily price swing since the financial turmoil of March 2020. European futures signaled a rebound, and the euro recovered to $1.0340 after bouncing back from a two-year low of $1.0125. Meanwhile, oil prices, which had initially spiked, began to decline.  

The market reversals followed calls between U.S. President Donald Trump and the leaders of Canada and Mexico, during which they agreed to strengthen border security. Trump, who had linked the tariffs to migration and drug control, decided to delay them by a month in response.  

Despite this, a 10% tariff on Chinese imports is still expected to go ahead, leading to a more cautious recovery in Asian stocks. Australian shares rose 0.5% after a 1.8% decline on Monday, while Japanese stocks gained 1.6%. Hang Seng futures pointed to modest gains, though not enough to offset the previous session’s losses. Trump's press secretary confirmed that he would speak with Chinese President Xi Jinping in the coming days. The new tariffs are set to take effect at 05:01 GMT.  

Trump’s approach to negotiations and the market’s volatile reaction echoed the uncertainty seen during his first term, leaving investors both relieved and apprehensive. With Chinese markets still closed for the Lunar New Year, the offshore yuan strengthened slightly to 7.3077 per dollar after briefly hitting 7.3765.  

The Australian dollar recovered to $0.6219 from Monday’s low of $0.6088, while the yen, a traditional safe-haven asset, weakened 0.3% to 155.23 per dollar.   Gold remained near record highs after surging on Monday due to fears of a global trade war, trading at around $2,813 an ounce. Treasury futures edged lower as investors debated whether the U.S. Federal Reserve would implement one or two rate cuts this year.  

Bitcoin, which had dropped close to $91,000 the previous day, rebounded to around $102,000. J.P. Morgan’s chief U.S. economist, Michael Feroli, noted that the rising policy uncertainty would be difficult to contain. He added that the recent developments are likely to reinforce the Fed’s cautious stance, keeping it on the sidelines for now.

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.