Currency Turmoil: Impact of U.S. Tariffs on Global Markets

The imposition of steep U.S. tariffs on Mexico and Canada caused the Canadian dollar and Mexican peso to fall to one-month lows. Despite a potential rise in the U.S. dollar from these tariffs, weak economic data countered its impact. The situation sparked fears of a broader trade war.

The Canadian dollar and Mexican peso experienced significant declines, reaching one-month lows, as a result of U.S. President Donald Trump's new tariffs on imports from these countries. The tariffs, which took effect alongside increased duties on Chinese goods, have ignited concerns of a larger trade conflict.

In response, China announced its own tariffs on certain U.S. imports, and Canada and Mexico are expected to retaliate. Despite the tension, market reactions remained subdued immediately after the announcements. Analysts note that there is still hope for rapid resolutions to these trade disputes.

Interestingly, the expected positive effect on the U.S. dollar was mitigated by weak domestic economic data, resulting in a depreciation of the currency. This allowed the euro to strengthen, given the absence of tariffs on the EU, prompting a sharp narrowing of the bond yield gap between the U.S. and the euro zone.

(With inputs from agencies.)