By Samuel Indyk and Wayne Cole

LONDON (Reuters) -The U.S. dollar staged a partial rebound on Tuesday after President Donald Trump suggested the U.S. could impose tariffs on Canada and Mexico by Feb. 1, challenging suggestions that his trade policy might be more gradual.

Trump told reporters his team was thinking of tariffs around 25% but offered no other specifics. He also floated the idea of universal tariffs but said the U.S. was not ready for that yet.

The dollar had fallen sharply on Monday after Trump’s first day included no specific plans on tariffs and officials signalled that any new taxes would be imposed in a “measured” way, a major boost for trade-exposed currencies.

A following trade memo merely directed agencies to investigate and remedy persistent trade deficits.

“Just because nothing specific was announced, there is clearly a threat that tariffs are coming and they could be quite chunky,” said Dominic Bunning, head of G10 FX strategy at Nomura.

“Some of the threat in terms of speed and scale of those tariffs coming in quickly has been diminished, but I think the market is still wary.”

The market reaction was a knee-jerk fall in the Canadian dollar and Mexican peso and a jump in the dollar. The U.S. currency was up 0.9% at 1.4442 Canadian dollars and strengthened by 1.1% against the Mexican peso.

The , which measures the currency against six major currencies, rose more than 0.6% to 108.68, having shed 1.2% on Monday in what had been the sharpest one-day drop since late 2023.

VOLATILE TIMES

The euro eased back to $1.0353 from an early top of $1.0434. The EU runs a sizeable trade surplus with the United States and has been viewed as a prime target for Trump’s tariffs.

Talking to reporters on Monday, Trump said he would remedy the trade imbalance either through tariffs or by Europe buying more U.S. oil and gas.

“The first few hours of the Trump administration has underscored that policy environment will be dynamic once again and markets should brace for volatility,” said Charu Chanana, chief investment strategist at Saxo in Singapore.

“Clearly, the markets celebrated too soon with tariff threats missing at the outset in Trump’s inaugural speech.”

The inauguration speech focused on emergencies in immigration and energy and a more expansionist foreign policy, including a pledge to take back the Panama Canal.

In his first term in office, Trump had a history of announcing imminent plans for policy proposals, including on healthcare and infrastructure, only for nothing to materialise.

Against the yen, the dollar was little changed at 155.77.

The yen still has some room to outperform, Nomura’s Bunning said, adding that Japan is probably less directly affected by tariffs than many other countries.

The yen has also been supported recently by growing expectations that the Bank of Japan would raise interest rates this Friday after comments from policymakers last week.

Markets are pricing about an 86% chance of a quarter-point increase.

The dollar added 0.3% against the offshore Chinese yuan to 7.2872. Trump has previously threatened China with tariffs of up to 60% but was vague on his plans on Monday.

Beijing later set a stronger fix for the yuan, suggesting it was still inclined to not let the currency fall too quickly.

The finished the domestic session at 7.2798 per dollar, the strongest such close since Dec. 13.

BofA strategists highlighted the current state of the US dollar, noting that while there is no trade deficit emergency prompting immediate tariffs, a partial reduction in the risk premium implied by the DXY index is evident.

The firm pointed out that some tariff risk premium is likely to remain due to ongoing uncertainty, but the more pressing short-term risk for the dollar comes from its proximity to CTA stop-loss levels.

The analysis by BofA suggests that despite concerns over tariffs and potential changes in trade policy, the US dollar has maintained its strength. This resilience is partially attributed to a lack of significant deceleration in the US services sector, which continues to support the currency against potential sell-offs.

The firm’s observation indicates that while tariff discussions and CTA unwinds are factors in the market, they have not yet led to a noticeable slowdown in the services industry compared to manufacturing.

The US dollar has seen an optical benefit from the equity sell-off that began in mid-December, according to BofA. However, this apparent risk-off bid is less obvious when examined more closely.

The analysts suggest that the dollar’s strength is more likely driven by the emergence of a tariff risk premium, which has implications for both currency and equity markets. This is reflected in the disparity between the DXY and the level implied by rate differentials, even after the sell-off on Inauguration Day.

BofA’s analysis indicates that while some level of risk premium due to tariff uncertainty is expected to persist, there is no immediate threat of a major decline in the US dollar’s value. The analysts emphasize that the lack of a deceleration in US services relative to manufacturing is a crucial factor in preventing a peak in the USD. This suggests that as long as the services sector remains robust, the dollar is likely to retain its floor against sell-offs.

In conclusion, BofA’s commentary provides an assessment of the US dollar’s performance in the face of tariff discussions and market movements. The firm’s analysts have identified the proximity to CTA stop-loss levels as a more significant immediate risk to dollar bulls than the ongoing tariff noise. The continued strength in US services is seen as a key support for the currency, helping to mitigate the impact of other market risks.

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Investing.com – The US dollar edged down against a basket of currencies in volatile trading on Tuesday, after President Donald Trump stopped short of imposing harsh tariffs on friends and adversaries alike in the first hours of his new administration.

By 08:22 ET (13:22 GMT), the , which gauges the greenback against six other major currencies, had fallen by 0.6% to 108.65.

But markets were still trying to suss out the direction of some currencies, with uncertainty remaining around Trump’s trade plans. The Canadian dollar and Mexican peso were particularly impacted by Trump’s statement that he would slap 25% duties on imports from those countries on February 1, with both falling in response to the comments.

Still, Trump did not move to roll out day-one universal tariffs, saying he is “not ready for that yet”. But he directed federal agencies to look into persistent US trade deficits and perceived unfairness in trade practices by other countries.

In a memo, the Commerce and Treasury departments and the US Trade Representative were ordered by Trump to also investigate the “economic and national security implications and risks” resulting from trade deficits and recommend “appropriate” responses, “such as a global supplemental tariff or other policies” to remedy the matter.

Analysts at ING noted that markets are now “at least cautiously optimistic that indiscriminate universal tariffs won’t be delivered all in one go”, adding that there is more downside room for the Canadian dollar and Mexican peso to weaken “should Trump follow through” with the threat.

“Expect a lot of ‘headline trading’ and short-term noise, with risks still skewed for a stronger dollar,” the analysts said.

Elsewhere, the euro eased against the US dollar, as traders assessed comments from Trump about America’s trading relationship with the European Union. Trump told reporters that he would move to fix a trade imbalance either through levies or by Europe purchasing more US oil and gas.

The Japanese yen was little changed, with Japan viewed as less exposed to Trump’s tariff threats than many other countries. Bets have also been rising that the Bank of Japan will opt to hike interest rates on Friday, giving additional support to the yen.

Compared to offshore , the dollar was broadly flat as well. On the campaign trail, Trump vowed to hit China with tariffs of up to 60%, but his statements regarding the matter were vague on Monday.

“This back-and-forth on trade, whereby investors get excited by media report using words like ‘deliberate’, ‘moderate’, and ‘targeted’ only for the White House to make a contradictory bombastic claim on draconian tariffs, will be the new normal going forward, and people should (at the least) be prepared for a ton of headline risk on this topic,” analysts at Vital Knowledge said in a note.

(Ayushman Ojha and Reuters contributed reporting.)