Closing post
With European stock markets closed after suffering heavy losses today, the dollar still weaker against rival currencies, and Wall Street in the red, it’s time to wrap up.
Americans have been warned to brace for higher prices within days after Donald Trump pulled the trigger on Monday and imposed US tariffs on goods from Canada and Mexico, and hiked tariffs on China.
Global stock markets came under pressure again on Tuesday, with leading indices falling sharply – and the benchmark S&P 500 losing all its post-election gains – as Canada, Mexico and China vowed to retaliate, and investors balked at the prospect of an acrimonious trade war.
US retail giants predicted that prices were “highly likely” to start rising on shelves almost immediately after a 25% duty came into effect on exports from Mexico to the US.
Most Canadian exports to the US also now face a 25% duty, with a 10% rate for energy products. The Trump administration imposed a 10% levy on all Chinese exports to the US last month, which has now been doubled to 20%.
Here’s the full story:
And here’s our US Politics Live blog, which is tracking all the latest developments:
Deutsche Bank warns of potential loss of the dollar's safe-haven status
There’s a risk that Donald Trump’s decision to impose new tariffs on Canada, Mexico and China will undermine the dollar’s safe-haven status, argues George Saravelos, global head of FX research at Deutsche Bank.
Saravelos told clients today that four developments this year suggest this may be happening:
First, the declining correlation between the US dollar and risk assets which has been at the core of portfolio construction for many real money investors over the last decade.
Second, the unusual and simultaneous outperformance of both high and low beta currencies, with the common denominator being cheap valuations versus the US dollar.
Third, the stark relative underperformance of US risky asset valuations versus the rest of the world going back three decades despite highly elevated global uncertainty.
Fourth, the US current account deficit breaching the 4% threshold in recent months which has historically marked the limits of dollar overvaluation.
