(Bloomberg) — The Mexican peso slumped after US President Donald Trump imposed new import tariffs against the country, though other developing-nation currencies held their own amid concerns about the impact of the escalating trade war on growth in the world’s largest economy.
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The peso fell as much as 1% against the dollar, extending its decline to a fourth day and hitting the weakest level in a month after the 25% duties came into effect, together with levies on Canada and China. Investors are awaiting Mexico’s response, with President Claudia Sheinbaum expected to address reporters on Tuesday morning local time.
Meanwhile, the MSCI index tracking emerging-market currencies edged up 0.2%, with the Thai baht leading the advance along with a group of eastern European currencies that mirrored the euro’s rise. The Bloomberg dollar spot index fell 0.2% amid concern the tariffs as well as the Trump administration’s layoffs of government employees will undermine the US economy.
The levies “are likely to make further growth more difficult if input prices rise significantly,” said Michael Pfister, an FX analyst at Commerzbank AG. “And the planned huge public-sector job cuts are likely to add to stagflation concerns.”
The Hungarian forint, which has been rallying in recent weeks on bets that the country will have to maintain one of the highest interest rates in the European Union, got an additional boost on Tuesday from the new central bank chief. Governor Mihaly Varga pledged a “decisive response” to inflation and financial stability risks, propelling the forint to the strongest level in five months.
The Chinese yuan gained 0.2% against the dollar a day before the National People’s Congress is set to convene for a meeting that might offer clues on new stimulus measures to shield the economy from the impact of US trade restrictions.
Permanent tariffs would hurt China’s economy, but the overall impact might be relatively muted as Beijing has already taken steps to make the country less vulnerable, according to Frederic Neumann, chief Asia economist at HSBC Holdings Plc in Hong Kong. More fiscal stimulus would help to offset the hit from weaker exports, he said.
“But are you going to pull out the so called policy bazooka and go all out and by next year you’re exhausted because you spent all your early policy ammunition? Probably not,” Neumann said on Bloomberg Television on Tuesday.