he dollar surged on Monday, pushing its Canadian counterpart and Mexican peso to multi-year lows while China’s yuan slumped to a record low in offshore trading after US President Donald Trump kicked off a trade war by imposing sweeping tariffs.
The US dollar’s gains were broad, with the euro also dropping to a more than two-year low and the Swiss franc – despite typically acting as a safe haven – sliding to the weakest since May.
Canada and Mexico, top two US trading partners, immediately vowed retaliatory measures, and China said it would challenge Trump’s levies at the World Trade Organization.
“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.
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“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 back their expectations of rate cuts from the Federal Reserve, trimming about 6 basis points to 41 bps of easing this year in the wake of the tariff news.
The US dollar advanced 0.7 percent to 7.2552 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.
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 US currency climbed 2.7 percent to 21.40 Mexican pesos, hitting its highest since March 2022, and rose 1.4 percent to C$1.4755, a level not seen since 2003.
The euro plunged as much as 2.3 percent to $1.0125 – the lowest since November 2022 – before recovering some composure to change hands at $1.025725 as investors braced for tariffs on Europe from the Trump administration.
The greenback added as much as 1.1 percent to 0.9210 Swiss franc, the highest since last May, before trading at 0.9142 franc.
Sterling fell 0.74 percent to $1.2304. Japan’s yen was more resilient, down slightly at 155.50 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 last about 4.4 percent lower at $97,622, sliding back below $100,000 to its weakest in nearly three weeks. Ether slid 15 percent to $2,812.8, to its lowest since early November.
