The dollar made a significant recovery on Tuesday after a sharp decline, attributed to mixed messages on tariffs from President Trump and the market's sensitivity to trade policy headlines.
U.S. stock futures rose on Tuesday following a volatile Monday, reacting to Trump's economic and trade policy statements. European equities also saw marginal gains.
Both the Mexican peso and Canadian dollar experienced a decline after news surfaced that Trump was considering implementing 25% tariffs on these neighboring countries by February 1st. The Mexican peso fell by 1.3% against the U.S. dollar, while the Canadian dollar hit a five-year low at $0.689.
Earlier, the U.S. dollar had weakened against other currencies after a report by the Wall Street Journal suggested an administration probe into trade issues without immediate tariffs. The dollar index rebounded by 0.64% on Tuesday to 108.69 but failed to recover the 1.2% loss from Monday, its largest drop since November 2023.
Charu Chanana, Chief Investment Strategist at Saxo, remarked, "The policy environment under the Trump administration is proving to be dynamic, leading to market volatility," highlighting the initial absence of tariff threats in Trump's inauguration speech.
The euro was down 0.62% at $1.0353 post a 1.4% surge on Monday over tariff delay relief, while sterling dropped by 0.67% to $1.2248 after a 1.3% rise the day before.
European markets showed a mixed response with the STOXX 600 index up by 0.16% while Germany's DAX declined by 0.1%. U.S. stock futures also rallied with Nasdaq futures up by 0.56% and S&P 500 futures rising by 0.49%.
Following an executive order targeting electric vehicles by 2030, European carmakers dipped by 0.4% on Tuesday. Trump's stance on reversing the trade deficit with the EU either through tariffs or energy exports weighed on market sentiments.
Chinese stocks experienced volatility but closed higher as Trump refrained from direct threats against exports, with the CSI 300 index up by 0.1%.
Trump's mention of potential tariff measures against China kept investors on alert despite no immediate action announced.