On Monday, the dollar index fell after U.S. President Donald Trump decided to pause new tariffs on Mexico for one month. This decision came after Mexico agreed to strengthen its northern border with 10,000 National Guard members to stop the flow of illegal drugs, according to Trump. The delay in tariffs helped boost the Mexican peso, which rose 0.95% against the dollar, reaching 20.481. Earlier, the peso had dropped to its lowest level in nearly three years at 21.2882 per U.S. dollar.
The dollar index, which measures the value of the U.S. dollar against a basket of other currencies, dropped by 0.639% to 108.81. Earlier in the day, it had reached a three-week high of 109.88. The pause in tariffs on Mexico provided some relief to markets, but uncertainty remains as tariffs on Canada and China are still set to take effect.
Why did Trump delay tariffs on Mexico?
President Trump’s decision to delay tariffs on Mexico came after the country agreed to take stronger steps to stop illegal drugs from entering the U.S. Mexico promised to send 10,000 National Guard members to its northern border to improve security. Trump said this move was important to address the issue of drug trafficking, which has been a major concern for the U.S. government.
The one-month delay gives both countries time to negotiate further. Trump hopes that this period will allow the U.S. and Mexico to reach a long-term agreement on border security and immigration. The delay also helped calm financial markets, which had been worried about the impact of new tariffs on trade and the economy.
Tariffs on Canada and China still loom
Last month, Trump had promised to impose tariffs on several countries, including Canada, Mexico, and China. Over the weekend, the U.S. announced it would impose a 25% tariff on Canada and Mexico and a 10% tariff on China starting Tuesday. Trump said these tariffs were necessary to address issues like immigration and drug trafficking. However, the one-month delay for Mexico has given both countries time to negotiate further.
Trump also mentioned on Monday that he had spoken with Canadian Prime Minister Justin Trudeau and planned to speak with him again later in the day. Despite the talks, the tariffs on Canada and China are still expected to take effect on Tuesday. In response, Canada has announced plans to impose retaliatory tariffs on U.S. goods. This means that if the U.S. imposes tariffs on Canadian products, Canada will do the same to American products.
A senior Canadian official told a reporter from The New York Times that Canada is not optimistic about receiving a similar delay in tariffs. The reporter shared this information on social media platform X, formerly known as Twitter. This suggests that tensions between the U.S. and Canada could escalate if the tariffs are implemented as planned.
How did markets react?
The delay in tariffs on Mexico had an immediate impact on financial markets. The Mexican peso, which had been struggling, gained strength and rose by 0.95% against the U.S. dollar. This was a positive sign for Mexico’s economy, as a stronger peso makes it cheaper for the country to import goods and pay off debts.
On the other hand, the U.S. dollar index fell by 0.639% to 108.81. The dollar had earlier reached a three-week high, but the news of the tariff delay caused it to drop. Investors often react to changes in trade policies because they can affect global economic growth and corporate profits.
What happens next?
The next few weeks will be critical for trade relations between the U.S., Mexico, and Canada. The one-month delay in tariffs on Mexico gives both countries time to negotiate and potentially reach a deal. However, the situation with Canada and China remains tense. If the U.S. moves forward with tariffs on these countries, it could lead to a trade war, where countries impose tariffs on each other’s goods in retaliation.
Canada has already announced plans to retaliate if the U.S. imposes tariffs. This could hurt businesses and consumers in both countries, as tariffs make imported goods more expensive. Similarly, the tariffs on China could further strain relations between the two largest economies in the world.
