The US dollar’s gains were broad, with the euro also dropping to a more than two-year low and the Swiss franc – despite typically acting as a safe haven – sliding to the weakest since May.
Canada and Mexico, the top two US trading partners, immediately vowed retaliatory measures, and China said it would challenge Trump’s levies at the World Trade Organization.
“The surprise for markets … is that Canada and Mexico retaliated immediately and that others, i.e. China and the EU, may follow their lead, resulting in a sharp contraction in global trade,” said Tony Sycamore, a market analyst at IG.
“The starting date of US tariffs on Canada, Mexico and China of Feb 4 was also much sooner than many had anticipated,” Sycamore said.
As Trump had promised last month, the US hit Canada and Mexico with duties of 25% and China with a 10% levy, calling the measures necessary to combat illegal immigration and the drug trade.
“Trump’s early strike, just two weeks into his four-year term, is likely to hit investor confidence,” said Mansoor Mohi-uddin, chief economist at Bank of Singapore.
“The consensus – including ourselves – had expected US tariffs would only threaten the economic outlook in the second half of 2025 after lengthy negotiations first between the US and its main trading partners,” Mohi-uddin said.
Investors also pared expectations of rate cuts from the Federal Reserve (Fed), trimming about 6 basis points, with futures roughly pricing a 54% chance of two cuts this year and 44% for just one in the wake of the tariff news.
The US dollar advanced 0.4% to ¥7.3462 in the offshore market, having earlier pushed to a record high of ¥7.3765.
Markets in China remain closed for the Lunar New Year and will resume trading on Wednesday.
Saxo chief macro strategist John Hardy said if these tariff moves and counter moves are sustained, “we are effectively in a trade war with all the associated fallout for growth and prices and disruptions to supply chains and companies”.
“The chief longer-term risk is one of stagflation: weak growth with higher inflation levels,” Hardy said.
The Mexican peso fell to its lowest in nearly three years at 21.2882 per US dollar and was last down 2.7% at 21.2583, while the Canadian dollar slumped to C$1.4755, a level not seen since 2003.
The Australian dollar hit a five-year low, while the New Zealand dollar fell to its lowest since October 2022.
The two Antipodean currencies are often used as liquid proxies for the Chinese yuan.
The euro plunged as much as 2.3% to US$1.0125 – the lowest since November 2022 – investors braced for tariffs on Europe from the Trump administration. The single currency was last down 1.25% at US$1.02325.
The greenback added as much as 1.1% to 0.9210 per Swiss franc, the highest since last May, before trading at 0.9142 franc.
Sterling fell 1% to US$1.2264. Japan’s yen was more resilient, down slightly at 155.59 per dollar.
That left the dollar index, which measures the US currency against six other units, 0.11% firmer at 109.65. It had touched a three-week high in early trading.
On the macroeconomic front, data on Friday showed the US Personal Consumption Expenditures (PCE) Price Index rose 0.3% last month, the largest increase since last April, amid a surge in consumer spending, suggesting the Fed would probably be in no hurry to resume cutting interest rates.
Bitcoin was at US$92,871, sliding back below US$100,000 to its weakest in nearly three weeks.
Ether fell sharply to its lowest since early November and was last at US$2,475.25.