(Bloomberg) — The dollar gained, erasing a hunk of Monday’s decline, after President-elect Donald Trump said the US will impose more tariffs on key trading partners.
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The offshore yuan fell 0.3% against the greenback 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 their respective currencies tumbling more than 1% each.
“Risk sentiment is getting crushed for now on Trump’s tariff risks — the dollar is being viewed as a haven and the affected nations’ currencies like the Mexican peso are getting hammered,” said Mingze Wu, currency trader at StoneX Financial. “This may just be a taste of what’s to come.”
Trump’s posts on his Truth Social platform were the first reminder since his re-election of the volatility his comments can cause. His comments on social media during his first term as the US President often triggered sudden market swings, upending the work and sleep schedules of investors across the globe.
On Monday, Trump claimed 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.”
“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.”
The dollar’s rally erased a bulk of Monday’s gains that were spurred by the late-Friday announcement of Scott Bessent — a Wall Street veteran — as Trump’s Treasury Secretary choice. The US currency gained against everything but the yen in early Asian trading Tuesday.
Treasury 10-year yields edged up one basis point to 4.28% on Tuesday after dropping 13 basis points in the last session.
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.