Trump's tariff threat triggers market turbulence, with the US dollar rising and the euro, Australian dollar, and Canadian dollar under pressure

2025-02-10 1558

With Trump once again threatening a new 25% tariff on US steel and aluminum imports, the US dollar rebounded strongly on Monday, severely dampening market risk sentiment. Trump announced that he will announce these tariffs later in the day and will implement equivalent tariff measures on other countries on Tuesday or Wednesday, imposing tariffs that match the tariffs already imposed on the United States by each country.

This latest tariff threat further exacerbates concerns about global trade conflicts. Despite this, the market reaction on Monday was relatively flat, and investors remained cautious and unwilling to make large-scale bets.

Continued escalation of Trump's tariff policies

Last week, Trump initiated an escalation of the trade conflict, first imposing tariffs on Mexico and Canada, then temporarily suspending them, but continuing to impose tariffs on goods from major Asian countries. However, Trump's latest measures still raise concerns in the market about the possibility of more trade conflicts in the future.

OCBC Investment Strategy Director Vasu Menon pointed out, "It is currently unclear whether Trump's new steel and aluminum tariffs are a negotiating strategy, and he may lower them in the future." He also said, "As the trade conflict escalates, the market will be in a tense state, and investors need to act cautiously and be prepared to deal with possible market fluctuations

Trends of US dollars, euros, and other currencies

Under Trump's tariff threat, the euro fell 0.1% against the US dollar to $1.0317, approaching the two-year low of $1.0125 hit last week. Investors are concerned that Trump's tariff threat to Europe may intensify, causing greater economic pressure.

The Australian dollar also fell 0.1% to $0.62705, approaching a five-year low set last week. The Canadian dollar fell nearly 0.3%, mainly due to Canada being one of the largest suppliers of aluminum metal to the United States, and the threat of tariffs having a significant impact on its economy.

Market analyst Tony Sycamore said, "Although today's tariff announcement is important, it also reminds us that not all tariff announcements will generate the same market reaction, and Trump's tariff news has become the 'new normal'

Market attention on the Federal Reserve and inflationary pressures

In addition to Trump, the focus of the market will also shift to the upcoming release of US inflation data and the speech by Federal Reserve Chairman Powell in the US House of Representatives. Analysts believe that tariffs may trigger inflationary pressures, which will further affect the Federal Reserve's monetary policy, especially in the context of the Fed's need to address high inflation.

Currently, the market expects the Federal Reserve to cut interest rates by 36 basis points this year, lower than the 42 basis points expected after last week's employment report was released. Macquarie strategists stated that despite the January employment report indicating a robust US labor market and good economic growth prospects, due to rising uncertainty, Macquarie has adjusted its policy expectations for the Federal Reserve this year, predicting that the Fed will maintain the 4.25% -4.5% interest rate range, while previously expecting a 25 basis point rate cut in March or May.

Other currency trends

The US Dollar Index (DXY) stands at 108.23, measuring the strength of the US dollar relative to the other six major currencies. The New Zealand dollar remained stable around $0.5656, approaching the two-year low set last week.

The Japanese yen fell more than 0.3% against the US dollar to 151.93, but it is still close to the one month high hit last Friday, and the market generally expects the Bank of Japan to raise interest rates this year.

Edit viewpoint

Trump's tariff threat has once again brought uncertainty to the global market, particularly putting pressure on major currencies such as the US dollar, euro, Australian dollar, and Canadian dollar. With the further escalation of trade conflicts, market volatility may intensify, and investors need to remain cautious. Meanwhile, the Federal Reserve's monetary policy and inflation outlook will become important variables for future market trends.

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