Trump's trade war salvo rocks markets

Investors react to Trump's tariffs, buying dollars and selling stocks amid fears of inflation and trade war risks.

Investors bought dollars, sold stocks and fretted about inflation on Monday (February 3, 2025) in a scramble to assess the risk of a trade war after Donald Trump put tariffs on top U.S. trading partners.

Trump's orders for additional levies of 25% on imports from Mexico and most goods from Canada, as well as 10% on goods from China are light on detail. But they kick in on Tuesday and have jolted markets that had assumed Trump was mostly bluff and bluster.

The selloff extended beyond just Canadian and Mexican markets and stocks directly in the line of fire, to cryptocurrencies, stocks and even the safe-haven Japanese yen, as investors tried to second-guess the volatile president's next moves.

Worries about the hit to growth from the inflationary impact of the wide-ranging tariffs and the uncertainty that creates for the Federal Reserve played a part, causing everything but the dollar and long-term U.S. Treasuries to be sold.

"Trump's trade war has started," said Alvin Tan, head of Asia currency strategy at RBC Capital Markets in Singapore, noting it was hard to see the U.S. dollar retreating any time soon.

The dollar has been the main mover, gaining as Trump headed for and then won office because investors figured tariff-hit countries would weaken their currencies to offset the impact.

On Monday, the euro fell 1.3% on fears Europe may be next on the tariff list.