On Tuesday (January 22), the US dollar slightly strengthened amid volatile trading. The US dollar index closed at 108.00, with a rise of 0.01%. The market closely monitored the potential tariff policies of the Trump administration, but due to the lack of concrete plans, market sentiment remained cautious.
Trump's Tariff Policies Draw Market Attention
On his first day in office, Trump did not immediately implement any specific tariff plans, but he mentioned considering a 25% tariff on goods imported from Canada and Mexico starting from February 1. He also suggested the possibility of implementing general tariffs but emphasized that the US was not yet ready. White House officials stated that any new tariff policies would be implemented in a moderate manner to minimize the impact on global trade. This news somewhat eased the pressure on trade-risk currencies, but the market remained sensitive to future uncertainties.
Monex USA forex trader Helen Given noted that volatility is returning to the market, especially with the forex market reacting extremely sensitively to any tariff remarks from the Trump administration. Currently, tariff proposals are still in the discussion phase, but the market is already starting to hedge against potential tariff risks on Mexico and Canada, which has intensified market instability.
Analysis of the US Dollar Performance
After reaching a two-year high of 110.17 last week due to tariff expectations, the US dollar has shown weakness recently, declining on five of the past six trading days. On Tuesday, the US dollar index attempted to rebound, but gains were limited, closing only slightly up at 108.00.
Erik Bregar, Director of FX and Metals Risk Management at Silver Gold Bull, stated that the crowded US dollar long positions make any ambiguous news about tariffs significantly affect prices, which is a key reason for the recent volatility in the US dollar's performance.
The euro rose against the US dollar by 0.11% to 1.0425, despite the potential for Trump to target the EU with tariffs. The European market's reaction to this potential risk remained calm. The British pound rose slightly against the US dollar by 0.04%, closing at 1.2328.
Trump also indicated that he would balance the trade deficit by imposing tariffs or encouraging Europe to buy more US energy products. Analysts at Barclays see this policy direction as a "tariff policy blueprint," noting that April 1 is the deadline for institutions to submit reports on trade deficits, which could become the next focus for the market.
Pressure on the Canadian Dollar and Mexican Peso
The Canadian dollar fell by 0.17% against the US dollar on Tuesday to 1.43, dragged down by lower-than-expected Canadian inflation data. The data shows Canada's December inflation rate slowed to 1.8%, which might enable the Bank of Canada to cut rates next week. The Mexican peso fell more significantly, down 0.64% to 20.649 pesos, mainly due to increased market concerns over Trump's tariff comments.
Yen Movement Influenced by BOJ Policy Expectations
The US dollar slightly fell against the yen by 0.03%, closing at 155.54. Over the past four trading days, the yen strengthened against the US dollar on three occasions, mainly driven by market expectations that the Bank of Japan might raise interest rates on Friday.
Market Outlook
Future forex markets will focus on the specific implementation of Trump's tariff policies and the monetary policy movements of the Bank of Japan and the Bank of Canada. Moreover, the April 1 trade report submission deadline could become a key time point affecting market fluctuations. Investors need to closely monitor policy dynamics and the release of economic data from major economies.
