The dollar made a strong recovery on Tuesday after an earlier sharp decline, as Donald Trump’s return to the U.S. presidency sparked market turbulence with mixed signals on trade policy. Investors, highly attuned to trade-related headlines, reacted to reports that the president would review his economic policies but hold off on introducing new tariffs on his first day back in office. Dow futures (YM00) surged by as much as 305 points, while S&P 500 and Nasdaq 100 futures also posted gains.
The market’s initial relief after Trump’s speech and a flurry of executive orders signaled no new punitive trade protections on China and Mexico was wiped out when he told reporters in the Oval Office that he was thinking about 25% tariffs on Canada from Feb. 1. The loonie and Mexican peso plunged as traders interpreted the comment as an aggressive salvo that could lead to a trade war with Canada and Mexico, which together send 75% of their exports to the United States.
However, analysts cautioned that Trump’s stream-of-consciousness delivery and his penchant for flip-flopping may have made some investors misread his comments, which he could rework or revisit. They also pointed out that his plans for hefty import tariffs and tax cuts could stoke inflation and push the Federal Reserve toward a faster path of interest rate hikes next year.
After the uncertainty, investors rushed to reposition their positions, sending yields on 10-year Treasuries lower while the euro dipped against the greenback. The euro’s drop against the dollar was exacerbated by the release of weak German September retail sales that undermined the ECB’s message that an end to deflation is in sight.
Across Asia, stock markets were up, led by Hong Kong’s Hang Seng and South Korea’s Kospi. Japan’s Nikkei index climbed 0.3%, while Australia’s ASX 200 was up 0.6%. Greek banks were among the biggest risers on the pan-European STOXX 600, with Eurobank Ergasias SA up 14.6% as the lender outlined management changes.
Elsewhere, oil prices increased as traders remained cautious after the US Federal Reserve left its key interest rate unchanged. Brent crude rose 0.9% to $54.25 a barrel and was on track for its third straight gain. The price of gold sank after a stronger-than-expected jobs report on Friday raised expectations for more Fed rate cuts this year. However, it later recovered as a fall in US consumer confidence boosted demand for safe-haven assets. The gold price dipped 0.4% to $1,306.50 an ounce.
