The DXY Index appreciated for a third day by 0.3% to 108.32 after US President Donald Trump announced a 25% tariff on all steel and aluminium imports. JPY depreciated most by 0.4%, losing some of its haven appeal. GBP fell by a 0.3% loss while EUR, CAD, and CHF depreciated by 0.2% each. US stock markets shrugged off the tariffs with the Dow, S&P 500, and Nasdaq Composite rising by 0.4%, 0.7%, and 1%, respectively. Despite the markets’ muted reactions, we caution against complacency given past experiences.
During his first term, Trump announced tariffs on steel and aluminium on March 1, 2018. The DXY fluctuated around 90 before global trade tensions heightened in April and sent it higher to 97 by August. Trump announced on March 22 a 30-day delay on imposing these tariffs on Canada, Mexico, and the EU to facilitate negotiations for trade concessions. These exemptions were rescinded on June 1, 2018, after these countries retaliated with counter-tariffs.
The above experience also cautions against optimism over Trump’s recent decision on February 3, 2025, to a 30-day pause to impose 25% tariffs on Canada and Mexico in exchange for tougher border controls on illegal migrants and drug trafficking. The European Commission has said that it would retaliate to Trump’s unlawful and counterproductive tariffs on steel and aluminium.
AUD/USD initially fell 0.6% to 0.6231 on the announcement. However, AUD ended the session unchanged at 0.6277 after Australian Prime Minister Anthony Albanese said that Trump would consider an exemptionbecause the US did not have trade deficits with Australia. Unfortunately, cost-of-living issues have eroded Albanese’s approval rating to the lowest level since the 2022 elections. Given the tight race between the ruling Labour Party and the opposition Liberal Party, Australia could end up with a minority government in the national elections due by May. The significant market bets for the Reserve Bank of Australia to deliver its first rate cut in four years at the February 18 meeting should also limit the AUD’s upside.
USD/INR may stabilize because of Indian Prime Minister Narendra Modi’s meeting with Trump in Washington D.C. on February 12-13. The Reserve Bank of India intervened strongly to pull USD/INR back to last Friday’s level of 87.5. USD/INR had gapped to a new record high near 88 on Trump’s steel and aluminium tariffs announcement. Although India has record trade deficits, it is America’s tenth-largest trade deficit partner. Modi seeks to avert a trade war by addressing Trump’s criticisms about high tariffs on American goods, limited market access, and his desire for India to increase US defence and energy product purchases. Meeting Trump’s full cabinet, Modi might face questions on the INR’s weakness, i.e., its 5% depreciation since the start of 2024 to record lows against the USD.
Quote of the Day
“The world is not what it seems – but it isn’t anything else, either.”
Raymond Queneau
February 11 in history
In 1970, Japan successfully launched its first satellite into an orbit around Earth, becoming the world’s fourth space power. 
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