Comparatively muted currency moves suggest traders are betting President Trump’s hefty tariffs on goods from Canada and Mexico will be short-lived, says MUFG, a Japanese bank.
Selloffs in the Canadian dollar and Mexican peso “have been relatively modest considering the scale of the tariffs that have been put in place,” wrote MUFG’s Lee Hardman.
“The price action suggests that market participants remain hopeful that the tariff hikes won’t remain in place for long helping to limit trade and economic disruption.”
More persistent tariff hikes could push down both currencies by 5 to 10%, he said.
The longer tariffs hold, the more likely it is that both economies tip into recession, and the greater the pressure on national central banks to cut interest rates, Hardman wrote.
