Global markets breathed a temporary sigh of relief yesterday after reports suggested that the new administration would delay aggressive tariff actions. However, the US Dollar (USD) has rebounded sharply following renewed tariff threats from President Trump, creating fresh volatility in currency markets. Scotiabank’s Chief FX Strategist, Shaun Osborne, unpacks the implications for traders and markets.
Table of Contents
USD Reverses Earlier Losses Amid Tariff Warnings
The USD suffered a sharp decline earlier this week, but late yesterday saw partial recovery. This came as President Trump reignited the tariff debate, threatening a 25% levy on imports from Canada, Mexico, and additional tariffs targeting China, citing border issues such as drug trafficking and illegal immigration.
“The USD is trading higher today, with the Canadian Dollar (CAD) and Mexican Peso (MXN) predictably underperforming,” Osborne explains. “However, the broader Dollar Index (DXY) still lingers below Monday’s opening levels.”
The Future of Currency: The New Counterfeit-Proof Dollar Bills Coming by 2025
Market Volatility Expected as Tariff Uncertainty Grows
While markets initially reacted positively to reports of a more measured approach to trade policy, the reintroduction of a 25% tariff threat has injected fresh uncertainty.
“Trade tariffs are still expected in some form,” Osborne notes, “but the unpredictability of policymaking makes forecasting the president’s decisions increasingly difficult. That unpredictability appears intentional, amplifying market volatility across the board.”
Asia-Pacific currencies and the Japanese Yen (JPY) have shown relative resilience amid this uncertainty. Losses against the USD in these regions have been limited to around 0.2–0.3%.
Americans Set to Benefit from Updated IRS Tax Rates for 2025
How to Get Up to $3,600 from the Child Tax Credit: Big Win for American Families
Costco’s Robust Membership Growth Fuels Revenue Increase Amid Fee Hike
SSA’s $22.8 Million Payment Mistake: What Went Wrong and How It’s Being Fixed
Albertsons Ends $25 Billion Merger with Kroger: Legal Battle Ensues After Historic Deal Collapse
Short-Term USD Outlook: Sentiment vs. Strategy
The USD’s near-term performance will likely hinge on how markets interpret the administration’s trade policy intentions.
“While a 25% tariff would be devastating for Canada and Mexico, the collateral damage to the US economy cannot be overlooked,” Osborne emphasizes. “If the administration takes a more considered approach, as hinted in yesterday’s WSJ report, it may further weigh on the USD. Current sentiment and positioning were largely built around the expectation of aggressive tariffs from day one.”
Key Takeaways for Traders
- Watch for Policy Clarity: With trade tariffs looming, market volatility is set to remain high. Investors should monitor policy developments closely.
- Expect High Beta FX to Suffer: The CAD and MXN are likely to face continued pressure amid trade-related uncertainty.
- Asia-Pacific Currencies Show Resilience: The JPY and other Asia-Pacific currencies are faring better, providing potential safe havens.
- Long-Term Drag for USD: If the administration opts for a less aggressive tariff strategy, it could temper the USD’s performance in the weeks ahead.
Renewed tariff threats have reignited uncertainty in currency markets, driving a partial recovery in the USD but leaving investors grappling with heightened volatility. While the ultimate direction of US trade policy remains unclear, markets are bracing for continued turbulence as traders assess the implications for global trade and economic stability.
Leave a Reply