(Bloomberg) -- The Mexican peso and South African rand were the biggest losers in an emerging-market currency slump after US President Donald Trump imposed tariffs on some of America’s biggest trade partners.
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The peso slumped to its lowest against the dollar in almost three years, as Mexican President Claudia Sheinbaum pledged retaliation after Trump slapped levies of 25% on both Mexico and Canada and 10% on China. The rand fell as much as 2% after Trump said the US would stop sending aid to South Africa over its land expropriation policies.
The selloff in emerging-market currencies comes as investors raised bets on the dollar given the expectation that US tariffs will fuel inflation and limit the room for the Federal Reserve to ease policy. The greenback is also benefiting as traders expect the levies to hurt foreign economies more than the US, as American demand declines for costlier imports.
“Trump came with all his artillery,” said Andres Pardo, chief Latam macro strategist at XP Investments. “With these accusations against the Mexican government, it is difficult to negotiate.”
Pardo was referring to the Trump administration’s accusations that the Mexican government has ties to drug-trafficking criminal organizations, a claim that Sheinbaum rejected.
In Asia, the South Korean won and Taiwanese dollar, which fell the most since 2015 as trading resumed after the Lunar New Year holiday, were the top losers due to their close trade ties to China. The offshore yuan slid 0.4%, with China’s local markets closed still for the holiday.
“Asia risks are vulnerable to the downside and potential exaggerated capital outflows,” said Wee Khoon Chong, senior APAC market strategist at BNY. “Domestic fundamentals and policy direction are important, but it is unlikely to be the key driver for Asia risks in the near-term as focus is firmly on the potential spillover of US tariff against Mexico, Canada and China.”
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