Dollar well in charge in wild start to the new week

The dollar is sitting over 1% higher against most major currencies to start the day as Trump duly delivered on his tariffs threat against Canada and Mexico. The additional 10% tariffs on China feels like a separate discussion at this stage as it sits in a different discourse. But for now, tariff man has shown that he is not just a man of words – at least in the opening salvo.

• White House says Trump has signed order to impose tariffs on Canada, Mexico and China

The tariffs will go into effect on 4 February and that leaves almost no time for any negotiations whatsoever. It’s without little doubt that the whole issue of fentanyl is a ruse and the bigger issue here is trade. But what’s the strategy?

When it comes to tariff man, it’s extremely tough to figure him out. However, one thing we all know from his first term is that he always goes in big and all guns blazing when he has the chance. He may pull back after that but what happens following his usual loud opening gambit can be anything really. And this looks like it is one of those times again.

All in all, it’s a risky gamble by Trump as his goal is to seek concessions. He wants Canada to fold and in typical Trump fashion, just wants to bully his way through the political agenda.

However, Canada has already announced retaliatory measures which will also go into effect on 4 February. At the end of the day, all of this is just hurting both economies in the meantime.

It’s fair to assume that there’s still 48 hours for all of this to change, even if it is very little time. As erratic as he may be, Trump surely knows that there’s a limit to all of this and he can’t really brag about the stock market and economy with moves like these.

With the bigger agenda being trade, both sides will have to stop poking each other with sticks in the playground and really learn to play together in the sandbox.

But then again, if there’s a lesson that we all learnt during his first term it is to never underestimate the ego and rashness of Trump. He may push it too far before all of this gets reined in.

For now, markets are reacting like he went off script and surprised everyone. But did he really? It seems that traders were complacent to the possibility of Trump really following through. And risk trades may pay a heavier price considering what’s at stake. S&P 500 futures are down 2% now but I reckon there will be more pain once we pass the 4 February due date.

As for FX, the dollar is well in charge to start the day with only the yen hanging somewhat with the greenback on safety flows. Bonds are bid and that is sending yields lower, keeping USD/JPY up just 0.2% to 155.50 currently. Elsewhere, the dollar is running a rampage thanks to an opening gap higher.

USD/CAD in particular is up 1.5% to above 1.4700 – its highest since 2003. Pain.

This article was written by Justin Low at www.forexlive.com.