US Dollar index briefly reaches above 107

• USD Index briefly reaches above 107
   
• Trump to impose tariffs on China, Mexico and Canada
   
• 55.9% probability of a 0.25 bps cut in December
   
• USDCNH, USDMXN and USDCAD appreciate
   
• FOMC Minutes in focus, due to release later today

The U.S. dollar index briefly reached above 107, after U.S. President-elect Trump said he would impose trade tariffs on China, Mexico and Canada immediately after his inauguration, which is scheduled for January 20, 2025.
 

These tariffs, along with expected tax cuts, could lead to higher inflation, potentially limiting the magnitude of the much-anticipated rate cuts.

At the time of writing, markets are pricing in a 55.9% probability of a 0.25 bps cut in December (source: CME FedWatch Tool).

A prolonged period of higher interest rates can lead to a decline in equity prices as investors become more risk averse and seek safer, higher yielding investment opportunities.

As a result, the markets may see the dollar appreciate against its peers, including those once available on our trading platform: USDCNH, USDMXN and USDCAD.

Following the Trump's announcement, these pairs rose...

• USDMXN up ~1.30%
   
• USDCAD to ~0.93
   
• USDCNH to ~0.22%

However, a significant appreciation of the US dollar could lead to an increase in the trade deficit and reduce US foreign earnings for Nvidia and similar companies.

What's next?

Markets are now focused on the upcoming release of the FOMC Minutes later today.

Depending on the tone, the FOMC minutes may have an impact on the dollar as the minutes provide insight into the Federal Reserve's monetary policy decisions, which can influence investor sentiment and subsequently the value of the US Dollar.