The landscape of United States trade is poised for significant change, driven by recent fluctuations in exchange rates and new tariff threats from President Trump. As of December 2024, the exchange rates for the US's three largest trading partners—Mexico, Canada, and China—show notable shifts. These rates, presented as foreign currency units per dollar, reveal a strengthening US dollar: MP20.2878/USD for Mexico, CAN1.4247/USD for Canada, and CNY7.2808/USD for China. Over the past year, these rates have changed by 17.9 percent, 6.2 percent, and 2.0 percent, respectively, with the Mexican Peso experiencing the most significant impact.
These shifts in exchange rates are critical as they suggest a strengthened US dollar against these currencies. The author has opted to analyze monthly averages to account for daily data volatility, providing a steadier view of these changes. With new tariffs on the horizon, the author anticipates major alterations in US trade dynamics. Although no tariffs were imposed on President Trump's first day in office, their looming presence is expected to make imports costlier for US buyers.
The impact on the Mexican Peso has been particularly severe, reflecting a broader economic concern for Mexico’s financial stability. In contrast, the Chinese Yuan has experienced minimal change over the same period. The author suggests that international perceptions of the US could significantly influence future currency exchange rates. Furthermore, foreign markets may be considering potential retaliatory measures against the US, which could counterbalance these exchange rate movements.
Financial markets are also reacting to these developments. The benchmark 10-year US Treasury bond yield has declined by more than 1% to below 4.6%, reflecting market concerns over tariff threats. Additionally, the price of gold (XAU/USD) has surged in response to these threats, reaching its highest level since early November and trading above $2,730 on Tuesday.
These market reactions underscore how currency markets incorporate a variety of expectations, including supply and demand factors. The author notes that this dynamic is crucial for understanding current market behavior. The recent announcement of a comprehensive investigation into US trade relationships underscores the gravity of these issues and highlights the need for thorough analysis as trade policies evolve.