On November 25, local time, U.S. President-elect Trump announced a plan to impose a 25% tariff on all goods entering the U.S. from Mexico and Canada, and an additional 10% tariff on all goods imported from China. This news caused significant fluctuations in the foreign exchange market. The U.S. dollar index surged by 0.41% to 107.25 at the time of writing, while the Mexican peso and Canadian dollar both depreciated by more than 1% against the dollar, and the offshore RMB also declined against the dollar.
Market Reaction: Strong Dollar, Trade Partners' Currencies Pressured
Trump's tariff threat has made traders more cautious about the currencies of America's key trade partners. Data shows that for the week ending November 19, the U.S. Commodity Futures Trading Commission (CFTC) reported that asset management companies are hastily unwinding bullish bets on the Mexican peso, while leveraged funds have turned bearish. Similarly, bearish sentiment towards the Canadian dollar is rising, with hedge funds and asset management companies displaying clear pessimism.
As a result, the Mexican peso dropped to 20.75 against the dollar, hitting a recent low, and the Canadian dollar also fell over 1% against the dollar, reaching a near three-year low. Meanwhile, although the decline in the offshore RMB was smaller, concerns about its future trend are growing.
Trump's New Nominee for Treasury Secretary Bessent: A Potential Market Cushion
Last Friday, Trump nominated veteran Wall Street figure Scott Bessent as U.S. Treasury Secretary. This decision has provided some expectations of cushioning for the market. Known for his caution and pragmatism, Bessent is thought to possibly mitigate the impact of the Trump administration's aggressive trade policies.
In an interview, Bessent expressed support for the gradual implementation of trade restrictions and showed readiness to negotiate the specifics of the tariffs. He emphasized that his primary task is to fulfill Trump's tax cut promises while controlling fiscal deficits and spending. He also reiterated the importance of maintaining the U.S. dollar's status as a global reserve currency.
Market Outlook: Coexistence of High Risk and High Uncertainty
Analysts point out that Trump's tariff threats could not only trigger international trade conflicts but also put pressure on domestic U.S. companies. For example, U.S. manufacturing and agricultural export businesses might face higher retaliatory tariffs, and the increased import costs could be passed on to consumers, further increasing inflation.
In the foreign exchange market, the strong dollar might persist, but overly aggressive tariff policies could undermine international investors' confidence in U.S. assets. The downward pressure on the currencies of trade partners may continue, particularly with higher uncertainty facing the Mexican peso and the Canadian dollar.
Bessent's potential cushioning effect as Treasury Secretary might offer some reassurance to the market, but whether he can truly balance Trump's tough trade stance with global economic stability remains to be seen.
Currently, the global market is entering a period of high volatility. Investors need to be wary of the potential impacts of policy changes on the foreign exchange and commodity markets while closely watching for more details on trade policies in the coming weeks.
