Greenback surges, other currencies purge as Trump imposes tariffs

The dollar surged on Monday, pushing its Canadian counterpart and Mexican peso to multi-year lows while China's yuan slumped to a record trough in offshore trade after US President Donald Trump's sweeping tariffs kicked off a trade war.

The US dollar's gains were broad, with the euro dropping to a more than two-year low and the Swiss franc sliding to the weakest since May despite typically acting as a haven.

"The surprise for markets is that Canada and Mexico retaliated immediately and that others, i.e. China and the EU, may follow their lead, resulting in a sharp contraction in global trade," said Tony Sycamore, a market analyst at IG.

"The starting date of US tariffs on Canada, Mexico and China of Feb. 4 was also much sooner than many had anticipated."

As Trump had promised last month, the United States hit Canada and Mexico with duties of 25 percent and China with a 10 percent levy, calling the measures necessary to combat illegal immigration and the drug trade.

"Trump's early strike, just two weeks into his four-year term, is likely to hit investor confidence," said Mansoor Mohi-uddin, chief economist at Bank of Singapore.

"The consensus - including ourselves - had expected US tariffs would only threaten the economic outlook in the second half of 2025 after lengthy negotiations first between the US and its main trading partners."

Investors also pared expectations of rate cuts from the Federal Reserve, trimming about 6 basis points, with futures roughly pricing a 54 percent chance of two cuts this year and 44 percent for just one in the wake of the tariff news.

The US dollar advanced 0.4 percent to 7.3462 yuan in the offshore market, having earlier pushed to a record high of 7.3765 yuan. Markets in China remain closed for the Lunar New Year and will resume trading on Wednesday.

'Cutting interest rates'

Saxo chief macro strategist John Hardy said if these tariff moves and counter moves are sustained, "we are effectively in a trade war with all the associated fallout for growth and prices and disruptions to supply chains and companies."

"The chief longer-term risk is one of stagflation: weak growth with higher inflation levels."

The Mexican peso fell to its lowest in nearly three years at 21.2882 per US dollar and was last down 2.7 percent at 21.2583, while the Canadian dollar slumped to C$1.4755, a level not seen since 2003.

The Australian dollar hit a five-year low, while the New Zealand dollar fell to its lowest since October 2022. The two Antipodean currencies are often used as liquid proxies for the Chinese yuan.

The euro plunged as much as 2.3 percent to $1.0125 - the lowest since November 2022 - investors braced for tariffs on Europe from the Trump administration. The single currency was last down 1.2 percent at $1.02325.

The greenback added as much as 1.1 percent to 0.9210 per Swiss franc, the highest since last May, before trading at 0.9142 francs. Sterling fell 1percent to $1.2264. Japan's yen was more resilient, down slightly at 155.59 per dollar.

That left the dollar index, which measures the US currency against six other units, 0.11 percent firmer at 109.65. It had touched a three-week high in early trading.

On the macroeconomic front, data on Friday showed the US Personal Consumption Expenditures (PCE) Price Index rose 0.3 percent last month, the largest increase since last April, amid a surge in consumer spending, suggesting the Fed would probably be in no hurry to resume cutting interest rates.

Bitcoin was at $92,871, sliding back below $100,000 to its weakest in nearly three weeks. Ether fell sharply to its lowest since early November and was last at $2,475.25.