Sterling suffers as first Trump tariffs set for February introduction
Sterling lost ground overnight after President Donald Trump suggested he would impose tariffs on Mexico and Canada as early as 1 February.
Speaking after his inauguration, Trump said he was “thinking in terms of 25 per cent on Mexico and Canada” in an attempt to clamp down on alleged people and drug trafficking.
In response to questions about the potential timing of new tariffs, he said: “I think we’ll do it 1 February”.
The comments caused the dollar to strengthen and diminished hopes that Trump might take a more measured approach to trade policy.
Markets had been given a boost on Monday by a report in the Wall Street Journal which suggested that Trump would not impose tariffs on Mexico and Canada on day one, but the relief was short-lived.
“The more positive take on trade risks has reversed overnight,” Jim Reid, Deutsche Bank’s head of research said.
The dollar index, which weighs the greenback against a basket of global currencies, gained 0.61 per cent on Tuesday.
Sterling was trading around 0.5 per cent lower against the dollar at $1.225.
“The dollar has been the key beneficiary of Trump’s initial moves as President, and we expect the dollar to remain resurgent, at least in the short term,” Kathleen Brooks, research director at XTB said.
Punitive tariffs would strengthen the dollar, as most economists think protectionist policies will reinforce inflationary pressures, keeping interest rates higher for longer.
But the dollar index remains 0.7 per cent off last Friday’s close, suggesting that investors are still hopeful that Trump will not initiate a global trade war.
“Markets are at least cautiously optimistic that indiscriminate universal tariffs won’t be delivered all in one go,” Francesco Pesole, an FX analyst at ING said.
Mohit Kumar, an analyst at Jefferies, admitted that tariffs were a “worry” for markets, but he argued they were largely a “negotiating tool” and would “eventually turn out to be not as bad as feared”.