US President Donald Trump has delivered on his promise of tariffs on Mexico, Canada, and China, sparking a trade war. The dollar surged as the Canadian dollar and Mexican peso hit multi-year lows while China’s yuan slumped to a record trough in offshore markets.
Canada and Mexico vowed retaliatory measures, stoking fears of a global trade war. Euro and Swiss franc also plummeted to two-year lows, while Bitcoin slid below $100,000.
The US tariffs have led investors to pare expectations of rate cuts from the Federal Reserve, with futures pricing a 54% chance of two cuts this year and 44% for one. A market analyst said the surprise retaliation by Canada and Mexico has resulted in a sharp contraction in global trade.
Markets expect China’s yuan to continue falling if the tariff moves are sustained, potentially leading to stagflation – weak growth with higher inflation levels. The US dollar advanced 0.4% against the yuan, pushing it to a record high of 7.3765 yuan.
The Mexican peso fell to its lowest in nearly three years at 21.2882 per U.S. dollar, while the Canadian dollar slumped to C$1.4755 – a level not seen since 2003. The Australian and New Zealand dollars also hit new lows, making them proxies for China’s yuan.
The US economy showed signs of resilience with data on Friday showing a surge in consumer spending, potentially limiting the need for the Federal Reserve to cut interest rates soon.
Source: https://www.reuters.com/markets/currencies/yuan-hits-record-low-mexican-peso-canadian-dollar-tumble-trump-tariffs-2025-02-02