The dollar hit a three-month low on Tuesday as President Trump’s long-threatened tariffs came into force. EUR came out best from the turmoil, up 1.6% on USD and 0.7% on GBP. But today is due to be another volatile day.
First announced last month, just weeks into his second presidency, Trump brought into force his tariffs against Canada and Mexico. Both trading partner’s exports will now face 25% duties when imported to the US. Canada retaliated with its own spread of tariffs on US products. For good measure, Trump also doubled last month’s tariffs on Chinese imports to 20%.
The market reacted strongly to the news, sending the dollar to a three-month low as traders sold dollars to buy less vulnerable currencies and offloaded shares in companies they thought would be impacted by the higher import and export costs. The S&P 500 and Nasdaq stock indices both lost more than 1% in value, making for the second week in row of significant declines.
Americans have been warned they will face higher prices in supermarkets as Canada and China announced retaliatory tariffs. Speaking to Congress last night, Trump said the growing trade war will cause “a little disturbance”.
The UK and Europe weren’t immune to the turbulence over the Atlantic. While both the pound and euro climbed as traders looked for safer currencies to hold, sending the sterling 0.8% up on the dollar and the euro 1.6%, stock indices fell. Tuesday saw the biggest drop in the UK’s FTSE 100 since October and Stoxx Europe lost more than 2%. This is even as the price of defence company shares rose off the back of Trump’s announced cessation of military support for Ukraine.
Trump has threatened further tariffs will come into force on April 2, and these will likely include duties on European imports.
Surveys of the service industry in the US, Europe, and UK, will all reveal how the different regions have responded to the first months of the year, revealing either growth or stagnation. The market is extremely volatile today, as they continue to react to the tariffs, Ukraine, and this sweep of new data.
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