(Bloomberg) -- Currency traders navigating a flurry of tariff-related announcements bought the dollar Thursday after President Donald Trump confirmed the launch of 25% levies against Canada and Mexico and raised the prospect of fresh levies on China.
Most Read from Bloomberg
-
The Trump Administration Takes Aim at Transportation Research
-
Cuts to Section 8 Housing Assistance Loom Amid HUD Uncertainty
-
Shelters Await Billions in Federal Money for Homelessness Providers
-
NYC’s Congestion Pricing Pulls In $48.6 Million in First Month
-
New York’s Congestion Pricing Plan Faces Another Legal Showdown
The tested strategy sent a Bloomberg gauge of the greenback up the most in three weeks. Mexico’s peso, Canada’s loonie and China’s offshore yuan all slid to the day’s lows in early US trading. The Canadian dollar touched the 1.4437 per dollar mark, the peso hit 20.55 per dollar, and the yuan traded at 7.2959 per dollar by 11:00 a.m. in New York.
“Markets were becoming ‘complacent’ about tariff risks,” said Yusuke Miyairi, a currency strategist at Nomura International Plc. “It has become clear that Trump’s stance on implementing tough tariff measures” still exists, Miyairi said.
Buying the greenback was a cornerstone of the so-called “Trump trade” following the president’s election in November, with investors betting that a mix of tariffs, tax cuts and deregulation would drive inflation in the US and support bond yields.
However, that conviction has faded in recent weeks as fatigue about often-contradictory news — combined with growing concerns about the negative growth impacts of tariffs — came into focus. The Bloomberg Dollar Spot Index has gained roughly 4.5% from Election Day through Jan. 15. Since then, it’s down about 1.5%.
“If and when these tariffs actually go into effect, we could see a further run for the Bloomberg Dollar Spot Index, but it’s important to note that they may not be permanent,” said Helen Given, a foreign-exchange trader at Monex. “While volatility is a given, sustained dollar strength is not necessarily.”
The dollar can advance up to 3% in the coming months, but it may weaken in the second half of the year depending on how economies in China and Europe recover, said Daniel Tobon, strategist at Citigroup Inc.
The president on Wednesday appeared to conflate the tariffs on Canada and Mexico with separate reciprocal duties planned on nations worldwide. The mix-up has some currency watchers arguing that the threat of US import duties should not be taken too literally.
“The whole idea is being perceived as just a tool to get a deal on other issues, as Trump probably is getting confused with all these threats and not really policy objectives per se,” said Marco Oviedo, a strategist at XP Investimentos. “There is some loss of credibility on the whole thing.”