The tariffs on U.S. imports from Mexico, Canada and China decreed by Donald Trump this Saturday have caused an earthquake in the financial markets. Since trading opened in Asia, the dollar has soared against the main currencies and is approaching parity with the euro. The Canadian dollar meanwhile has fallen to a new historic low against the U.S. currency, while the Mexican peso has depreciated to its lowest level since the end of 2021. At the same time, futures on the S&P 500, the main U.S. stock index, and the Euro Stoxx 50, the European index, are trading lower and oil has become more expensive. Uncertainty and increased aversion to risk have led to declines of more than 20% in some cryptocurrencies. On Friday, before the end of the trading day, the effects of the protectionist measures were already being felt in the financial markets.Investors and analysts are trying to put together the pieces of the new geoeconomic puzzle posed by the start of Trump’s trade war, which has already been met with a reply by the affected parties, but which could spread to more products and regions. As part of the most notable protectionist attack by the United States in more than a century, Trump plans to begin imposing tariffs on the import of oil, semiconductor chips, aluminum, steel and pharmaceutical products starting this month. His roadmap also includes the imposition of universal tariffs. The euro zone will not be free from either one, according to the Republican’s plans.There are several factors that explain the relative strength of the dollar. On the one hand, it involves a readjustment of the real terms of trade. That is to say, the implementation of tariffs weakens the demand for products from Mexico and Canada and, with it, the economies of those countries. They are expected to regain competitiveness via the exchange rate by adjusting the parity of their currencies. On the other hand, tariffs could have inflationary effects, which may force the Federal Reserve to maintain higher interest rates for longer, widening the gap with the rates of the European Central Bank and making investments in dollars relatively more attractive. Short-term U.S. Treasury debt rates are increasing their yield this Monday. In addition to the adjustment of the terms of trade and the prospect of higher rates, there is also the dollar’s role as a safe haven currency in times of turbulence.With all these ingredients in place, the exchange rate fell on Monday to just 1.02 dollars per euro, matching the lows of a few weeks ago, which are also the closest to parity since November 2022, when the dollar’s value exceeded that of the euro. The U.S. currency has reached the equivalent of 1.47 Canadian dollars, which is a historic low for the latter. In the case of Mexico, one dollar was being exchanged on Monday for 21.20 Mexican pesos, which means that the currency of the country presided by Claudia Sheinbaum is at its lowest level since November 2021.Trump on Sunday told
Lun. Feb 3rd, 2025
