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Dollar Jumps, Peso and Loonie Sink as Trump Threatens Tariffs - BLOOMBERG
(Bloomberg) -- The dollar surged on Tuesday after President-elect Donald Trump vowed additional tariffs on China as well as US neighbors Canada and Mexico.
Bloomberg’s dollar gauge rose 0.4% and the offshore yuan slumped to a four-month low after Trump said he would impose an extra 10% tariffs on goods from China. He also vowed to enact 25% tariffs on all products from Mexico and Canada, sending the currencies tumbling 1% and 1.7%, respectively.
Trump’s posts on his Truth Social platform are the first specific threat to impose levies on US imports since his election victory, signaling his resolve to follow through with his campaign promises.
“Risk sentiment is getting crushed for now on Trump’s tariff risks — the dollar is being viewed as a haven,” said Mingze Wu, currency trader at StoneX Financial. “This may just be a taste of what’s to come.”
Trump picked Wall Street veteran Scott Bessent as his Treasury Secretary last week, spurring speculation that the administration would take more gradual approach toward implementing trade restrictions. That view weighed on the dollar and boosted Treasuries on Monday.
“The impact from the Bessent appointment was overestimated by traders,” said Shoki Omori, chief desk strategist at Mizuho Securities Co. in Tokyo. “Even if Bessent tries to handle the deficit, Trump in the end has ultimate power to impact the US’ fiscal situation — it’ll be a volatile four years for global assets.”
Trump said in posts that China had failed to follow through on promises to institute the death penalty for traffickers of fentanyl, writing that “drugs are pouring into our Country, mostly through Mexico, at levels never seen before.”
What Bloomberg strategist says:
“A higher FX volatility world is here even before a new Trump administration takes over. ‘Tariff Man’ is back and there is no question the ramifications will weigh on assets across the globe.”
Mary Nicola, MLIV strategist
The dollar gained against all major peers but the yen in early London trading Tuesday. Treasury 10-year yields edged up two basis points to 4.30% after dropping 13 basis points in the previous session.
“Buckle up,” said Benito Berber, chief economist for the Americas at Natixis. “Trump will likely want something from Mexico and — while investors were expecting a big threat from Trump — the currency should take a big hit.”
Cautious Positioning
Prospects for possible stiff tariffs had traders already turning more cautious on currencies of the US’ trading partners.
Asset managers have been dismantling bullish bets on the Mexican peso, while leveraged funds turned bearish on the currency, according to data from the Commodity Futures Trading Commission for the week through Nov. 19. Hedge funds and asset managers were also pessimistic on the loonie during the same period.
Markets are on alert for more tariff headlines and “this uncertainty over US trade policy will keep markets heavy,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia in Sydney.
--With assistance from Matthew Burgess.
(Updates prices, adds strategist comment in seventh paragraph.)
