By Samuel Indyk and Wayne Cole
LONDON (Reuters) -The dollar partially rebounded on Tuesday after sliding the day before as President Donald Trump suggested the U.S. could impose tariffs on Canada and Mexico by Feb. 1, challenging suggestions his trade policy may be more gradual.
Trump told reporters his team was thinking of tariffs around 25%, but offered no other specifics. He also floated the idea of universal tariffs, but said the U.S. was not ready for that yet.
The dollar had fallen sharply on Monday after Trump’s first day included no specific plans on tariffs and officials signalled any new taxes would be imposed in a “measured” way, a major relief for trade-exposed currencies.
A following trade memo merely directed agencies to investigate and remedy persistent trade deficits.
“Just because nothing specific was announced, there is clearly a threat that tariffs are coming and they could be quite chunky in size,” said Dominic Bunning, head of G10 FX strategy at Nomura.
“Some of the threat in terms of speed and scale of those tariffs coming in quickly has been diminished, but I think the market is still wary.”
The market reaction was a knee-jerk fall in the Canadian dollar and Mexican peso and a jump in the dollar. The U.S. currency climbed 0.8% to 1.4429 Canadian dollar and added 1.2% on the Mexican peso.
The dollar index, which measures the currency against six peers, rose 0.6% to 108.58, having shed 1.2% on Monday in what had been the sharpest one-day drop since late 2023.
VOLATILE TIMES
The euro eased back to $1.0362 , from an early top of $1.0434. The EU runs a sizeable trade surplus with the United States and has been seen as a major target for Trump’s tariffs.
Talking to reporters on Monday, Trump said he would remedy the trade imbalance either through tariffs or by Europe buying more U.S. oil and gas.
“The first few hours of the Trump administration has underscored that policy environment will be dynamic once again and markets should brace for volatility,” said Charu Chanana, chief investment strategist at Saxo in Singapore.
“Clearly, the markets celebrated too soon with tariff threats missing at the outset in Trump’s inaugural speech.”
The inauguration speech focused on emergencies in immigration and energy and a more expansionist foreign policy, including a pledge to take back the Panama Canal.
In his first term in office, Trump had a history of announcing imminent plans for policy proposals, including on healthcare and infrastructure, only for nothing to eventuate.
Against the yen, the dollar was little changed at 155.68 .
“The yen still has some room to tactically outperform,” Nomura’s Bunning added.
“(Japan) is probably less directly impacted by tariffs than many other countries.”
The yen has also recently been supported by growing expectations the Bank of Japan would raise rates at its policy meeting this Friday, following comments from policymakers last week.
Markets are pricing around an 86% chance of a quarter-point hike.
The dollar added 0.3% on the offshore Chinese yuan to 7.2896 . Trump has previously threatened China with tariffs of up to 60%, but was vague on his plans on Monday.
Beijing later set a stronger fix for the yuan, suggesting it was still inclined to not let the currency fall too quickly.
The onshore yuan finished the domestic session at 7.2798 per dollar, the strongest such close since Dec. 13.
This post is originally published on INVESTING.
