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Mexico’s peso and the Canadian dollar fell against the US dollar on Tuesday as investors were unsettled by president-elect Donald Trump’s pledge to levy tariffs on imports from neighbouring trade partners and China.
The peso suffered a 1.2 per cent drop against the greenback, while the Canadian dollar shed 0.8 per cent.
The dollar index, which tracks a basket of currencies including sterling and the yen, was flat in London, having earlier risen by as much as 0.6 per cent in Asia trading.
In Europe, where both the threat of direct tariffs and the potential fallout from tariffs on China have worried investors, the region-wide Stoxx Europe 600 index was down 0.5 per cent.
The moves come after investors on Monday welcomed the nomination of hedge fund manager Scott Bessent as Treasury secretary — seen by many as a sign that Trump’s policies may be moderated. That sent the dollar, which had rallied strongly in recent months, lower.
“The markets are in a total yo-yo for the time being,” said Emmanuel Cau, an analyst at Barclays. “It saw the choice of Bessent as a more pragmatic move yesterday, but today is a total tweak of that, [with the perception that] Trump will have a hard tariff approach.”
In a post on his social media site Truth Social late on Monday, Trump announced plans for an additional 10 per cent tariff on goods from China as well as a 25 per cent levy on “all products” from Mexico and Canada.
US Treasuries, which rallied strongly on Monday, lost some of their gains on Tuesday, pushing the 10-year yield up 0.03 percentage points to 4.29 per cent. They have suffered in recent weeks on fears that tariffs would drive up inflation and put upward pressure on interest rates.
The market was waking up to the negative factors from Trump’s policy agenda, said Laura Cooper, head of macro credit at Nuveen. “It’s not just the sugar high of fiscal stimulus,” she said.
While Trump only singled out China, Canada and Mexico, European companies that investors fear may be hit by the fallout were down. Daimler Truck was one of the biggest fallers in the Stoxx 600, dropping 3.8 per cent. Shares in Stellantis and Volvo were also down.
In Japan, the export-heavy Topix closed down 1 per cent, while Taiwan’s Taiex finished the day 1.2 per cent weaker. On Wall Street, S&P 500 futures were up 0.3 per cent, while Nasdaq futures were flat.
Chinese stocks, however, shrugged off the news, while the renminbi fell 0.2 per cent against the dollar, with the proposed tariffs on Chinese imports lower than some investors had feared.
There was an element of “relief” in Chinese markets over the announcement, said Brian Arcese, a portfolio manager at Foord Asset Management in Singapore.
“[It] is largely a function of the tariff proposal being 10 per cent and not 60 per cent . . . though we wouldn’t be surprised to see these numbers change over time,” he said.
Economists at Standard Chartered estimated that a 1 percentage point increase in US tariffs on China resulted in a 1.5 percentage point decline in Chinese exports to the US during Trump’s first term as president.
On Monday, “the market narrative was that the nomination of Scott Bessent [was of] someone who understood the market and could reduce the more extreme policy scenarios”, said Jason Lui, head of Asia-Pacific equity and derivative strategy at BNP Paribas.
“But by including Canada and Mexico on day one, it may open the door to faster tariffs on other trading partners,” he added.
Additional reporting by Ian Smith in London
