On Monday, February 3, the US dollar surged significantly, leading to the Canadian dollar and Mexican peso hitting multi-year lows, while the offshore Chinese Renminbi exchange rate fell to a historic low. Over the past weekend, US President Donald Trump announced new tariff measures against Canada, Mexico, and China, causing market turmoil.
The strength of the US dollar was widespread, with the Euro hitting its lowest level in over two years, and even the Swiss Franc, typically seen as a safe-haven currency, temporarily dropping to its lowest point since May last year.
As promised by Trump last month, the United States imposed a 25% tariff on Canada and Mexico over the weekend, and added a 10% tariff on China, citing the need to curb illegal immigration and drug trafficking.
These tariffs will officially take effect at 12:01 am Eastern Time on Tuesday, February 4 (0501 GMT).
On Monday, the US dollar against the offshore Renminbi rose by 0.36%, reaching 7.3404 yuan, hitting a historic high of 7.3765 yuan at one point. The Chinese market was closed for the Lunar New Year holiday and will resume trading on Wednesday, February 5.
The Australian dollar fell to a five-year low, while the New Zealand dollar dropped to its lowest level since October 2022. These two currencies are often seen as substitutes for the Renminbi and are thus more affected by the Chinese economy.
The Mexican peso against the US dollar fell to its lowest point in nearly three years, at 21.2882 pesos, now at 20.9870 pesos, a 1.5% decrease.
The Canadian dollar against the US dollar dropped to 1.4792 Canadian dollars, the lowest level since 2003, now at 1.46775 Canadian dollars, depreciating by 0.88%.
Concerns about the economic outlook of Canada and Mexico have arisen in the market, with analysts suggesting that both countries may face risks of economic recession.
Due to the tariff news, expectations of a rate cut by the Federal Reserve have been lowered in the market. Futures trading indicates that the likelihood of the Federal Reserve cutting interest rates twice this year has now dropped to 50%.
According to Reuters, Chris Turner, Global Head of Markets at ING, stated: “Investors will closely watch whether Trump will have a phone call with the leaders of Canada and Mexico today and reach any agreement within 24 hours.”
US stock index futures fell on Monday, and the market will monitor the stock market’s reaction. Turner added: “The foreign exchange market will keep an eye on whether US stocks will see a significant decline, which could affect the Fed’s policy direction.”
The US dollar index (measuring the dollar against six major currencies) was at 109.15, having earlier reached a three-week high of 109.88.
The Euro plunged by 2.3% at one point, hitting a low of 1.0125 dollars, the lowest level since November 2022, now at 1.027 dollars, down 0.9%. Concerns about the Trump administration potentially imposing tariffs on Europe intensified.
Over the weekend, Trump stated that the US will impose tariffs on the European Union, but did not specify when this would be implemented.
The US dollar against the Swiss Franc rose by up to 1.1% to 0.9210 Francs, the highest level since May last year, now at 0.91455 Francs. The British pound fell by 0.43% against the US dollar, now at 1.2342 dollars.
The Japanese Yen showed resilience, with the US dollar against the Yen falling by 0.45% to 154.495 Yen.
Bitcoin fell to $95,521, dropping below the $100,000 mark, the lowest level in nearly three weeks. Ether also saw a significant drop, falling to the lowest level since early November last year, now at $2,621.62.