The United States Dollar is taking a beating across the FX board today following the imposition of 25% tariffs against Canada and Mexico at 12:01AM New York time
Overview
These blanket levies, against the US’ two closest trading partners, have as of now had an inverse effect on the Buck compared with their original imposition at the beginning of last month. The big question of the day: has US exceptionalism lost its appeal?
USD’s downfall has been in the tea leaves for the last few sessions as this morning’s tariff deadline got closer and closer, but the imposition of reciprocal tariffs from Canada earlier today may have been a nail in the Buck’s coffin. President Trump’s words from the White House yesterday initially boosted the Buck in the afternoon session, but as the evening wore on the Dollar’s fortunes turned negative. The Bloomberg Dollar Spot Index at one point fell as much as 0.7% in early trading this morning, and US equities look to be following suit, set to open in the red. The Dollar and equities, on typical macro thinking, usually have an inverse relationship, but this morning’s price action tells us that many market-makers are shifting their larger view on the US economy. 25% blanket levies against Canada and Mexico and 20% tariffs against China – together, the US’ three largest trading partners – are more than likely going to have substantial drag on the hot US economy of the last few years. Many market strategists also anticipate these actions plunging at least the Canadian economy into recession, and the Mexican economy may not fare well either. Coupled with the potential of a downstep in Chinese economic production, traders are very much on the defensive today. Most of the FX market’s long-dollar positions were exited over the last few weeks, but it’s possible the Buck has more room to fall. Many macro strategists, though, were anticipating these tariff actions could be Dollar-positive given the potential for increased domestic spending in the fallout, but spot/forward traders had much less conviction on the matter.
Risk premiums continue to grind higher and higher today, and there are still substantial risk events remaining on the calendar this week. The European Central Bank will release its latest interest rate decision Thursday morning, and the US sees non-farm payroll data for February Friday morning.
What to Watch This Week…
- European Central Bank Rate Decision, Thursday
- US Non-Farm Payrolls, Friday 8:30AM
- Monex USA Online is always open
Complete Economic Calendar can be found here.
JPY ⇑
In its traditional safe-haven fashion, Japanese Yen is making a decided move stronger against USD today to the tune of nearly a percent. President Donald Trump did mention to press yesterday that Japan is one of a few countries with which he is concerned about having an intentionally weak currency, but the Yen has responded to both that statement and larger risk premiums by running up the score against the Buck. The Bank of Japan, not meeting for two more weeks, is expected to hold interest rates steady this cycle, but traders are still preparing for the possibility of further rate hikes from the central bank this year.
MXN ⇓
Mexican Peso, ever the bellwether for the larger global mood, seems to be bearing the brunt of the impact of this morning’s tariff action and has lost roughly a quarter of a percent of ground against USD since yesterday’s close. President Claudia Sheinbaum spoke yesterday and emphasized that Mexico would not be taking ‘any’ action, either positive or negative, toward the US until after this morning’s deadline. Her statement appears to have backfired on MXN, though this morning’s move is largely in line with most emerging-market currencies.
