Markets Look to Extend Dollar’s Gains as Trump Carries Through Threat to Start Trade War 

​Having lived with the risk of a US-led trade war for weeks, financial markets reopen Monday needing to deal with the reality.Published Feb 02, 2025  •  4 minute read Join the conversation 59gpjb4373hhej4qux57viyj_media_dl_1.png Bloomberg(Bloomberg) — Having lived with the risk of a US-led trade war for weeks, financial markets reopen Monday needing to deal with the reality.Article contentArticle contentInvestors look likely to initially favor the US dollar, propelling it to new highs, and shun stocks after President Donald Trump carried out his threat to impose general levies of 25% on Canada and Mexico and 10% on Chinese goods starting on Tuesday, sparking commitments to retaliate from other governments. Advertisement 2Story continues belowThis advertisement has not loaded yet, but your article continues below. View more offersArticle contentTalk of tariffs alone has benefited the dollar since Trump’s election. Last week was its best since mid-November, with the Bloomberg Dollar Spot Index up nearly 1%. US stocks fell on Friday with carmakers and China-exposed companies leading the slide. Bond traders must decide whether to focus on elevated risk in markets or inflation concerns. “Trade tensions may escalate in the short run as other countries are politically obligated to retaliate or mimic the US policies,” said Stephen Jen, chief executive at Eurizon SLJ Capital. “This for the shorter-term should support more dollar strength and higher US yields.” Behind the bullish dollar position is the bet that tariffs will fuel inflationary pressures and keep US interest rates elevated, while also hurting foreign economies more than the US and adding to the greenback’s safe-haven lure. Foreign currencies get hurt as American demand declines for costlier imports.GLOBAL REACT: Trump Tariffs Risk 1.2% US GDP Hit, 0.7% PCE Boost“While a statement from President Trump indicating that the dollar is too strong could impact financial markets, the overall outlook remains unchanged —- tariffs and domestic inflationary pressures are likely to sustain the fundamental trend of dollar appreciation,” said Shoki Omori, chief global desk strategist at Mizuho Securities in Tokyo. Top StoriesGet the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.We encountered an issue signing you up. Please try againArticle contentAdvertisement 3Story continues belowThis advertisement has not loaded yet, but your article continues below.Article contentLong-dollar bets remained elevated at the end of last week. The Canadian dollar and Mexico peso could suffer anew in the coming days, while the risk-sensitive Australian dollar, seen as particularly exposed to the threat of US tariffs against China, could continue to underperform.“We expect selling pressure to hit the peso and Canadian dollar at tomorrow’s Asia open, but it’s difficult to assess just how severe the move will be,