TOKYO- The dollar strengthened broadly on Tuesday after US tariffs on Chinese goods came into effect, triggering swift retaliation from Beijing and prompting a selloff in the Chinese yuan and the Australian dollar.
The Canadian dollar and Mexican peso also weakened despite earlier winning a reprieve on their own US tariffs. The euro declined, with the European Union also finding itself in Washington’s trade crosshairs.
US President Donald Trump’s administration slapped additional 10 percent tariffs on imports from China yesterday.
Beijing responded with tariffs to take effect Feb. 10 on things such as American cars, farm equipment and energy shipments.
That reignited worries about a widening and possibly protracted global trade war, which had receded somewhat overnight following Trump’s last-minute deals with Ottawa and Mexico City.
“Unlike Canada and Mexico, it is clearly harder for the US and China to agree on what Trump demands economically and politically,” said Gary Ng, senior economist at Natixis.
“The previous market optimism on a quick deal still looks uncertain. Even if the two countries can agree on some issues, it is possible to see tariffs being used as a recurrent tool, which can be a key source of market volatility this year.”
The Chinese yuan edged down about 0.3 percent to 7.3213 per dollar in offshore trading although that was well back from the record trough reached overnight at 7.3765 yuan. There is no official yuan trading until Wednesday, with mainland markets still closed for the week-long Lunar New Year holidays.