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Donald Trump sparked a bout of turmoil in financial markets hours after his inauguration, threatening to impose heavy tariffs on Mexico and Canada.
Speaking in the Oval Office late Monday, Trump said he could impose 25% tariffs on both countries by February 1, repeating earlier threats to impose tariffs on two of the United States' closest trading partners in response to poor border security and fentanyl. . Trafficking.
Trump's renewed warnings sent the Mexican peso down 1.1 percent against the US dollar, and the Canadian dollar fell 0.9 percent as Tuesday's trading session began in the Asia-Pacific region.
Both currencies rose sharply on Monday after administration officials said Trump It will refrain from imposing fees on key partners immediately and instead will study the commercial situation.
The price fluctuations highlight how investors are bracing for turmoil this week, especially in currency markets, as Trump floats plans to dismantle several of Joe Biden's signature policies and enact a new law. Protection agenda Which uses America's economic weight as a weapon.
“This kind of volatility is the new normal,” said Eric Winograd, an economist at AllianceBernstein. “Policy under a Trump administration is likely to be less predictable and less process-oriented than we are accustomed to under a Biden administration.”
A broad sell-off in the US currency after Trump's comments on tariffs also eased, with the dollar index, a measure of the currency against six peers, trimming a 1.3 percent decline to just 0.7 percent. Futures tracking the S&P 500 on Wall Street also lost as much as 0.5 percent.
In a sign of how Trump intends to use trade restrictions as a key diplomatic tool, the new president criticized the European Union on Monday evening, threatening the bloc with tariffs if it did not buy more American oil.
“They don't take our cars, they don't take our agricultural product, they don't take almost anything,” Trump said. “However, we take their cars and we take their agricultural products, and we take a lot from them. So we will solve that either with tariffs or they will have to buy our oil.”
The euro, the largest weight in the dollar index, fell about 0.5 percent against the US currency to $1.04 early in the Asia-Pacific session on Tuesday, partially reversing a 1 percent gain on Monday. The British pound fell 0.4 percent to $1.23 after rising 0.8 percent the previous day.
In Asian markets, traders were relieved after Trump refrained from immediately imposing trade restrictions against China, even as he warned that he might do so if Beijing refuses to hand over partial control to the United States over the social media app TikTok.
The CSI 300 index of mainland listed companies opened 0.5 percent higher, while Hong Kong's Hang Seng Index rose 1 percent. The value of the renminbi in offshore transactions also strengthened, reaching a six-week high of $7.25.
“The short version is that we probably avoided the worst-case scenario from a risk asset perspective. There were no tariffs on China on day one,” said Jason Lowe, head of Apac equity and derivatives strategy at BNP Paribas.
“The Chinese stock market (already) rose on the inauguration after the phone call between Trump and Xi over the weekend, which is why there is a more nuanced reaction.”
(Additional reporting by Adam Samson, Amy Williams, Harriet Clarfelt, Arjun Neel Alim, Leo Lewis and Nick Fields)
