By Ronnie Harui
Th U.S. dollar surged against neighboring currencies after President Trump said he plans to place 25% tariffs on imports from Canada and Mexico on Feb. 1, but there was some relief in Asian markets as investors adjusted to the new administration's policy priorities.
The U.S. dollar climbed 0.8% against the Canadian dollar and 1.0% versus the Mexican peso after Trump's comments. The greenback also strengthened against some Asian currencies Tuesday as Trump hinted that there could be tariffs coming on China and elsewhere. He also threatened an at least 100% tariff on BRICS nations, which includes China, Russia, India, Indonesia and Iran.
The U.S. Dollar Index was down 1.0% as the greenback fell 0.3% against the yen while rising 0.2% against the euro. Volatility in foreign-exchange markets could have picked up because of reduced liquidity on account of the Martin Luther King Jr. holiday in the U.S. on Monday.
Investors should be cautious about viewing dollar weakness as the start of a sustained downtrend, said Philip Wee, senior forex strategist at DBS Group Research.
Trade policies and tariffs require coordinated efforts across several departments, and the Senate has only confirmed Marco Rubio as secretary of state so far, he noted.
However, "we remain mindful that Trump's second-term cabinet, when in place, will deliver a broader, more coordinated, and far-reaching tariff policy than what was seen during his first term," Wee said.
Among Asian currencies, the dollar was 0.1% higher against its Singapore counterpart and 0.2% stronger against the Indian rupee, but was 0.1% lower versus the Korean won and was 0.3% weaker versus the Thai baht.
Asian equity markets were broadly higher, with Hong Kong's Hang Seng Index rising 1.1%, Japan's Nikkei Stock Average adding 0.1%, South Korea's Kospi gaining 0.1%, while Singapore's FTSE Straits Times Index shed 0.5%.
The market's reactions suggest that "considerable fear was embedded across the different asset classes," DBS Group Research Senior Rates Strategist Eugene Leow said in a note. "Some of this fear has now been unwound."
Trump's series of executive orders didn't include immediate changes to U.S. trade policy and held off on unveiling "day-one" tariffs, suggesting a shift to bilateral negotiations, CIMB analyst Michelle Chia and others said in a note.
Though Trump's comments on Mexico and Canada tariffs suggest he may be aggressive with trade measures, he also said he isn't ready to move ahead with universal tariffs on goods from around the world.
"We're not ready for that yet," Trump told reporters when asked about the idea of universal tariffs. He had campaigned on the use of universal tariffs of at least 10% on imports from a variety of countries.
The yield on the 10-year U.S. Treasury was down 7 basis points at 4.5370%. The absence of immediate tariffs at Trump's inauguration could provide Treasurys some relief but the dynamic may not last given his threats of tariffs on Canada and Mexico, DBS's Leow said.
Stricter immigration rules could lead to an even tighter labor market and stickier wage inflation, he added, though falls in U.S. yields will be limited as long as the economy holds up.
The combination of lower yields and a weaker dollar will be appreciated by emerging market and Asian government bonds, but volatility from rapid policy shifts looks set to be a regular feature during Trump's term, Leow said.
Oil dropped after Trump pledged to boost U.S. crude production, ANZ Research analysts said in commentary. Trump reiterated his goal to encourage more output by cutting red tape and allowing drilling on previously banned federal lands, the analysts noted.
This underlines his determination to reorient federal government policy behind oil and gas production, a sharp pivot from the Biden administration's efforts to curb fossil fuels, they added.
Front-month WTI crude oil futures dropped 0.7% to $77.36 a barrel and front-month Brent crude oil futures slipped 0.1% to $80.07 a barrel.
Write to Ronnie Harui at ronnie.harui@wsj.com
(END) Dow Jones Newswires
January 21, 2025 00:03 ET (05:03 GMT)
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