Donald Trump’s threat of tariffs on Mexico and Canada has overwhelmed the markets

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Hours after his inauguration, Donald Trump threatened to impose huge tariffs on Mexico and Canada, sparking turmoil in the financial markets.

Speaking in the Oval Office late Monday, Trump said he could impose 25 percent tariffs on both countries as early as Feb. 1, repeating earlier threats to retaliate against two of America’s closest trading partners for lax border security and retaliation for fentanyl. Human trafficking.

Trump’s renewed warning sent the Mexican peso sliding 1.1 percent against the U.S. dollar, while the Canadian dollar fell 0.9 percent in early Asian trade on Tuesday.

Both funds rose sharply on Monday after administration officials said Trump It avoids immediately hitting key partners with taxes and instead studies the business situation.

The price jitters underscored how investors are bracing for volatility this week, especially in currency markets, as Trump plans to roll back many of Joe Biden’s divisive policies and introduce legislation. Conservation agenda It is an instrument of American economic growth.

“This kind of volatility is the new normal,” said Eric Winograd, an economist at AllianzBernstein. “Policy under the Trump administration may be less predictable and process-oriented than what we’re used to under the Biden administration.”

A broad sell-off in the greenback eased after Trump’s comments on tariffs, with the dollar index, a measure of the currency against six peers, falling as much as 1.3 percent to just 0.9 percent.

Wall Street’s tracking indexes, the S&P 500 and Nasdaq 100, pointed to a flat open on Tuesday morning after losing early gains.

In a sign that Trump intends to use trade embargoes as a key diplomatic tool, the new president hit out at the European Union on Monday night, threatening to impose tariffs if the bloc does not buy more US oil.

“They don’t take our cars, they don’t take our farm produce, they don’t take almost anything,” Trump said. We still take their cars and we take their farm produce, we take a lot from them. So we’re either going to tax that or they’re going to have to buy our oil.

The euro, the biggest weight in the dollar index, fell about 0.5 percent against the greenback in early Asia-Pacific session on Tuesday, partially reversing Monday’s 1 percent gain.

Sterling fell 0.3 percent to $1.23 after gaining 0.8 percent the previous day.

In Asian markets, traders were relieved even as Beijing refused to hand over partial US control over TikTok after Trump refrained from immediately imposing trade sanctions on China.

The CSI 300 index of mainland-listed companies was flat in mid-day trading on Tuesday and Hong Kong’s Hang Seng was up 0.9 percent.

The offshore renminbi hit a six-week high of $7.25 to the dollar before weakening to 7.28.

“The short version is that we’ve avoided the worst case scenario from a risk-asset perspective,” said Jason Lui, head of Apac equities and derivatives strategy at BNP Paribas.

“China’s equity market (already) went into a tailspin after the Trump-Xi phone call over the weekend, which is why there is a more measured reaction.”

Adam Samson and Harriet Klarfelt reported in New York, Amy Williams in Washington, Arjun Neil Alim in Hong Kong, Leo Lewis in Tokyo and Nick Fields in Sydney.