The dollar surged on Monday, driving the Canadian dollar and Mexican peso to multi-year lows, while China’s yuan hit a record low in offshore trading after U.S. President Donald Trump’s tariffs sparked a trade war.
The greenback’s strength was broad-based, with the euro falling to its lowest level in over two years and the Swiss franc—despite its typical safe-haven status—initially dropping to its weakest point since May.
As promised last month, the U.S. imposed tariffs of 25% on Canada and Mexico and a 10% levy on China over the weekend, citing the need to curb immigration and drug trafficking. These tariffs are set to take effect at 12:01 a.m. ET (0501 GMT) on Tuesday.
Canada and Mexico, the two largest U.S. trading partners, swiftly vowed to retaliate, while China announced plans to challenge the tariffs at the World Trade Organization.
“The real surprise for markets is how quickly Canada and Mexico responded, with China and the EU potentially following suit, which could lead to a sharp downturn in global trade,” said Tony Sycamore, a market analyst at IG.
He added that the Feb. 4 implementation date for the U.S. tariffs was earlier than many had expected.
The tariffs are anticipated to drive up U.S. inflation, strengthening the dollar by keeping interest rates elevated for an extended period.
Following the tariff announcement, market expectations for Federal Reserve rate cuts were adjusted, with futures now pricing in only a 50% chance of two rate cuts this year.
The U.S. dollar climbed 0.36% to 7.3404 yuan in offshore trading, after reaching a record high of 7.3765 yuan earlier. Chinese markets remained closed for the Lunar New Year and are set to reopen on Wednesday.
The Mexican peso dropped to its weakest level in nearly three years at 21.2882 per U.S. dollar before recovering slightly to 20.9870, down 1.5% on the day. Meanwhile, the Canadian dollar tumbled to 1.4792 per U.S. dollar, its lowest level since 2003, and was last down 0.88% at 1.46775.
Analysts warn that Canada and Mexico’s economies could be at risk of recession, while the eurozone faces further stagnation if U.S. tariffs take effect.
The Australian dollar sank to a five-year low, while the New Zealand dollar hit its lowest level since October 2022. These two currencies, often seen as liquid proxies for the Chinese yuan, faced heavy selling pressure.
“Investors are anxiously watching for any phone conversation today between President Trump and his counterparts in Canada and Mexico that might lead to a resolution within 24 hours,” said Chris Turner, global head of markets at ING.
He added that currency traders would also monitor the impact on equity markets, particularly whether a decline in U.S. stocks could prompt the Federal Reserve to reconsider its monetary policy stance.
U.S. equity futures pointed to a weaker open on Monday.
The euro plunged as much as 2.3% to $1.0125—its lowest since November 2022—before recovering slightly to $1.027, down 0.9% on the day. Investors braced for potential U.S. tariffs on the European Union after President Trump confirmed over the weekend that they would proceed, though he did not specify a timeline.
The dollar also strengthened against the Swiss franc, rising as much as 1.1% to 0.9210—the highest since last May—before settling at 0.91455. The British pound weakened 0.43% to $1.2342.
In contrast, the Japanese yen held firm, with the dollar slipping 0.45% to 154.495 yen.
The dollar index, which tracks the U.S. currency against six major peers, stood at 109.15 after touching a three-week high of 109.88 earlier in the session.
In the cryptocurrency market, Bitcoin fell to $95,521, retreating below the $100,000 mark and hitting its lowest level in nearly three weeks. Ether also dropped sharply, reaching $2,621.62, its weakest since early November.
