The U.S. dollar drops on Monday after President Donald Trump decided to pause new tariffs on Mexico for one month. This decision came after Mexico agreed to deploy 10,000 National Guard troops to strengthen its northern border and curb illegal drug trafficking.
During this period, both nations will continue negotiations. This pause in tariffs strengthened the Mexican peso, which gained 1.25% against the dollar, reaching 20.4196. Earlier, it had dropped to its lowest level in nearly three years at 21.2882 per U.S. dollar.
Following the announcement, the dollar index fell 0.5% to 108.96. Earlier in the session, it had reached a three-week high of 109.88. Investors reacted to the news with mixed sentiments, reflecting uncertainty about future tariff policies.
Marc Chandler, chief market strategist at Bannockburn Global Forex, noted that the delay reinforces the idea that tariffs are being used as a negotiation tool rather than a long-term strategy.
Despite the Mexico reprieve, the U.S. government confirmed its plan to impose a 25% tariff on Canada and Mexico, along with a 10% duty on China. These tariffs aim to curb illegal immigration and narcotics trafficking. However, Canada has announced retaliatory tariffs, signaling escalating trade tensions.
The Canadian dollar strengthened to 1.4568 per U.S. dollar after previously hitting its weakest level since 2003. Meanwhile, the offshore Chinese yuan traded at 7.3254 per U.S. dollar after touching a record high of 7.3765 earlier in the session. China has stated its intent to challenge the new tariffs at the World Trade Organization.
The euro also dropped sharply, losing 2.3% at one point, reaching $1.0125, its lowest since November 2022. Investors are concerned that U.S. tariffs on Europe could further weaken the eurozone economy. Meanwhile, the Australian and New Zealand dollars fell to multi-year lows, reflecting concerns about China’s economic outlook.
In contrast, the Japanese yen remained strong, with the dollar slipping 0.24% against it to 154.845. Safe-haven assets like the yen often benefit during periods of market uncertainty.
Economists warn that these tariffs could increase inflation in the U.S., which may lead to prolonged higher interest rates. Some analysts also believe that Canada and Mexico could face recession risks if tariffs remain in place.
Meanwhile, European leaders have signaled their readiness to retaliate if the U.S. moves forward with tariffs on the European Union. The market remains cautious as traders assess the long-term impact of these trade policies.
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The U.S. dollar drops after Trump paused Mexico tariffs for a month. Learn how global markets reacted and what it means for Forex traders.
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