The dollar gained some ground on Tuesday after weakening the previous day as President Donald Trump hinted the U.S. could impose tariffs on Canada and Mexico as early as Feb. 1, challenging suggestions his trade policy might be more gradual.

Trump told reporters his team was considering tariffs of around 25%, but gave no further details. He also floated the idea of ​​universal tariffs, but said the U.S. was not ready for them.

The dollar fell sharply on Monday after Trump's first day in office did not include specific plans for tariffs and officials suggested new taxes would be imposed in a "measured" way, a major relief for trade-exposed currencies.

A subsequent trade memo simply directed agencies to investigate and fix the persistent trade deficit

"Just because there was no specific announcement, there is clearly a threat that tariffs are coming and they could be quite large," said Dominic Bunning, head of G10 FX strategy at Nomura.

"Some of the threat in terms of the speed and scale of the tariffs that come into effect quickly has been reduced, but I think the market is still wary."

The market reaction was a sudden drop in the Canadian dollar and the Mexican peso and a surge in the greenback. The U.S. currency rose 0.8% to 1.4429 Canadian dollars and gained 1.2% against the Mexican peso.

The dollar index, which measures the currency against a basket of six other currencies, rose 0.6% to 108.58, after dropping 1.2% on Monday in its sharpest one-day decline since late 2023.

Source: Investing.com