Rebounding Dollar Amid Trump's Tariff Threats: Market Reactions Unveiled

The U.S. dollar rose on news of potential tariffs on Canada and Mexico, following President Trump's announcement, although specifics were lacking. The market responded with volatility, impacting currencies like the Canadian dollar and Mexican peso. Despite initial fears, the actual implementation speed remains uncertain.

The U.S. dollar experienced a partial recovery on Tuesday after President Donald Trump implied possible tariffs on Canada and Mexico, potentially by February 1st. Trump's comment of a 25% tariff consideration, without elaborating further, stirred the market, challenging earlier notions of a gradual trade policy approach.

On Monday, the lack of announcement on tariffs and hints at a measured approach boosted trade-exposed currencies. A trade memo instructed agencies to address trade deficits but offered no clear plan. "Despite no specific announcements, the threat of significant tariffs looms," noted Dominic Bunning from Nomura.

These developments led to a sharp decline in the Canadian dollar and Mexican peso, while the U.S. dollar strengthened. The dollar index saw a rise, contrasting with Monday's sharp decline. Meanwhile, the euro made a slight retreat, with President Trump hinting at addressing trade imbalances, foreshadowing dynamic market conditions.

(With inputs from agencies.)