Dollar Value Rises
The value of the dollar rose following the announcement of tariff imposition policies by President-elect Donald Trump, while the currencies of China, Canada, and Mexico declined.
According to Bloomberg on the 26th, the offshore yuan fell to its lowest level in four months after the tariff announcement. The dollar-yuan exchange rate briefly reached 7.2730 yuan per dollar, marking its lowest point since July 30.
Meanwhile, the Bloomberg Dollar Spot Index, which measures the dollar's value against the currencies of 10 major countries, surged 0.7% briefly that afternoon.
On the same day, President-elect Trump mentioned the fentanyl issue on his social media platform Truth Social and announced that starting from his inauguration on January 20 next year, an additional 10% tariff would be imposed on all Chinese imports.
Ben Bennett, Head of Asia Investment Strategy at LGIM, stated, "It is clear that the direction of the yuan is weakness," adding, "Chinese authorities will be uneasy about excessive depreciation and capital outflows."
However, the market expects that actual tariff announcements and negotiations after President-elect Trump's inauguration will influence the yuan's movement going forward. Liang Ding, a Macro Hive analyst, said, "As President-elect Trump's inauguration approaches, the market may begin to price in additional risk premiums related to a second trade war."
After President-elect Trump imposed the first round of tariffs on Chinese imports during his first term in 2018, the yuan weakened about 5% against the dollar. One year later, as trade tensions escalated, it fell an additional 1.5%. Major foreign media analyzed that Trump's tariff policies could trigger inflation and keep U.S. interest rates relatively high, which could negatively impact the currencies of U.S. trading partners.
On the same day, President-elect Trump stated that crime and drugs enter through Mexico and Canada, and he plans to impose 25% tariffs on all imports from Mexico and Canada. As a result, the Mexican peso briefly plunged 1.3%, hitting its lowest level since 2022. The Canadian dollar also fell more than 1% at one point.
Eric Martinez Magana, a strategist at Barclays, forecasted that the dollar-to-Mexican peso exchange rate could weaken to 21.50. On the day, the dollar-peso rate was trading around 20.50.
Benito Berber, Chief U.S. Economist at Natixis, predicted, "Trump is likely to want something from Mexico," and added, "The currency will take a significant hit."
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