The US has followed through on its threats, imposing 25% tariffs on Canada and Mexico and 10% tariffs on China. However, market sentiment suggests skepticism about the longevity of tariffs on Canada and Mexico, with many believing they could be reversed within the week. President Trump is expected to engage in discussions with Canadian Prime Minister Trudeau and Mexican President Sheinbaum. The US dollar initially surged in response, with the Canadian dollar and Mexican peso experiencing the sharpest declines. Surprisingly, other major currencies, including the euro, Australian dollar, and Swedish krona, also faced significant losses.

Asia Pacific Markets

The Japanese yen remained relatively stable despite some volatility. The US 10-year Treasury yield steadied, helping stabilize the exchange rate. The dollar, which had been weakening against the yen, rebounded slightly, reaching JPY156, its highest level in four days. Japan's manufacturing PMI fell to 48.7, the lowest level since March 2024, continuing its downward trend since October 2022.
In China, the yuan weakened further. The offshore yuan dropped to its lowest level since October 2022, with the dollar briefly touching CNH7.3735. Additionally, China’s Caixin manufacturing PMI declined to 50.1 from 50.5, while the official PMI dipped below the 50-mark, signaling contraction in the sector.

European Markets

Despite key economic data releases, European markets were largely influenced by US tariff announcements. The eurozone’s manufacturing PMI improved slightly to 46.6, but this was overshadowed by the broader trade concerns. Inflation data showed a 0.3% decline for the month, though the year-over-year rate ticked up to 2.5%. Market expectations suggest an upcoming European Central Bank rate cut in March. The euro fell every day last week, continuing its downward trend and opening significantly lower this week.
The British pound also struggled. After a two-week recovery, it faced renewed selling pressure, falling to $1.2250 before attempting to stabilize above $1.23. The UK’s final manufacturing PMI showed only a slight improvement, reaching 48.3. Investors are now looking ahead to the Bank of England meeting, where a rate cut is widely expected.

American Markets

The US dollar strengthened sharply following the tariff announcements. The Dollar Index surged past its 20-day moving average, climbing as high as 109.90. The greenback's performance against the Canadian dollar was particularly notable, with USD/CAD reaching nearly 1.48 after initially dipping on reports of a delayed tariff implementation. In economic data, the ISM manufacturing index remains below 50, reflecting continued contraction in the sector. Meanwhile, January auto sales are expected to decline slightly after a strong Q4 performance. In the bond market, the US two-year yield rose nearly eight basis points to 4.27%, while the 10-year yield held steady at 4.55%. Investors remain focused on potential policy responses to the economic impact of tariffs.