USD rebounds on renewed tariff threat – Scotiabank
Markets generally and high beta FX in particular breathed a sigh of relief yesterday when the WSJ reported that President Trump would not impose aggressive tariffs immediately on returning to the White House. Rather, the incoming administration will take a more considered approach to tariff action after reviewing existing arrangements, Scotiabank’s Chief FX Strategist Shaun Osborne notes.
USD reverses some of Monday’s drop
“The US Dollar (USD) tumbled but losses partially reversed late yesterday after Trump wheeled out the 25% tariff threat on Canada and Mexico (and additional tariffs on China) from February 1, citing border issues (drugs, illegal immigrants). The USD is trading higher on the session so far today, with the CAD and MXN predictably underperforming, but the DXY remains well below Monday’s opening levels.”
“Trade tariffs are still coming in some form but the apparent capriciousness of policymaking means anticipating the president’s decisions gets all the harder. That’s probably deliberate but higher uncertainty means higher volatility for markets broadly. The JPY and Asia FX are relative out-performers on the session, limiting losses to the USD to around –0.2/0.3%.”
“Assuming the 25% tariff threat is just that (while very harmful for Canada and Mexico, the negative repercussions for the US economy would be significant as well), a more considered approach to trade tariffs that yesterday’s WSJ report hinted at may still be a drag on the USD’s near-term outlook, given sentiment and positioning that was geared around (aggressive) ‘tariffs from day one’.”
Author
FXStreet Insights Team
FXStreet
The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.
