Trump reaffirms US Mexico Canada tariff plan, market risk aversion heats up

Trump announced on Monday that the tariff measures against Canada and Mexico, scheduled to be officially implemented on March 4th, will proceed as scheduled, despite the two countries taking measures to strengthen border controls and attempting to prevent fentanyl from flowing into the United States.

Despite the efforts of Canada and Mexico to respond to the demands of the US government, Trump still insists on imposing tariffs on these two major trading partners

The market originally expected that the United States may delay these tariff measures, but Trump's statement has intensified market uncertainty, leading to a rise in risk aversion. Investors have turned to safe haven assets such as gold and US treasury bond bonds, while the US dollar has also benefited from safe haven demand.

US dollar rebounds, non US currencies under pressure

The US dollar index remained stable at 106.75 during the Asian session on Tuesday, recovering from the two month low of 106.12 set on Monday.

The euro fell to around 1.0470 against the US dollar, having previously reached a one month high. The future trend of the euro may depend on the progress of the government formation after the conservative election victory in Germany.

Since January, the US dollar has fallen about 3% from its high, mainly due to a series of lower than expected US economic data that have intensified market concerns about a slowdown in US economic growth. However, due to ongoing uncertainty in trade policies, the decline of the US dollar has not been sustained.

In the past week or two, the US economic data has continuously weakened its position as an 'economic exception', but whenever the stock market's risk aversion sentiment heats up, the US dollar can still receive traditional safe haven support. "- Ray Attrill, Head of Foreign Exchange Strategy at the National Australia Bank (NAB).

He further pointed out, "As the implementation of tariff policies approaches, market risk sentiment is difficult to recover, which will continue to provide defensive support for the US dollar

The US dollar gave up some of its losses against the Japanese yen, and the market is paying attention to the policies of the Bank of Japan

The US dollar rose 0.25% against the Japanese yen on Tuesday to 149.95, rebounding from the 149.00 level touched on Monday, which is the lowest point since December last year.

Recently, the decline in the yield of US treasury bond bonds, especially the decline in the real yield, has put pressure on the US dollar against the Japanese yen. At the same time, the market's speculation that the Bank of Japan (BoJ) may raise interest rates again pushed up the yield of Japanese treasury bond bonds, which further strengthened the appeal of the yen.

Editor's viewpoint:

At present, the trend of the US dollar is being influenced by a game of two forces: on the one hand, weak US economic data has weakened the attractiveness of the US dollar, causing market concerns that the Federal Reserve may have to cut interest rates early; On the other hand, the uncertainty of trade policies and risk aversion continue to provide support for the US dollar.

In this context, the US dollar may maintain a volatile trend in the short term, and investors need to focus on the upcoming release of the US Core Personal Consumption Expenditure (PCE) Price Index to further assess the Federal Reserve's policy path.

In addition, the next move of the Bank of Japan is also worth close attention from the market, especially whether the yen can continue to strengthen, which will be the key to the future trend of the US dollar against the Japanese yen.