Currency Markets Jitter as Trade War Threats Loom

The dollar strengthened as traders assessed the impact of potential tariffs from U.S. President Trump, amid tensions with Colombia. Despite a shaky past week, the greenback showed resilience, backed by fears of inflation and international trade disputes, affecting currencies like the Mexican peso and Canadian dollar.

On Monday, the dollar saw gains as market participants evaluated the potential implications of President Donald Trump's tariff threats. Although last week marked the dollar's weakest performance since November 2023, recent developments have rekindled concerns, particularly between the U.S. and Colombia over trade issues.

Charu Chanana from Saxo noted Colombia's tensions as a sign that tariff worries are still pressing. Trump considered tariffs against Colombia for rejecting military flights, prompting Colombia to threaten retaliatory tariffs. However, the White House later confirmed that Colombia agreed to accept deportation flights.

While the Mexican peso and the Canadian dollar weakened amid trade concerns, the euro and other currencies adjusted in anticipation of European Central Bank policy decisions. The potential for high tariffs on goods from China, Canada, and Mexico has raised fears of inflation, stabilizing treasury yields and the dollar.

(With inputs from agencies.)