The U.S. dollar strengthened against major currencies on Tuesday, following new tariff threats from the United States and concerns over a low-cost Chinese AI model, DeepSeek, disrupting the tech market.
U.S. Tariff Threats Cause Market Volatility
- President Donald Trump announced plans to impose tariffs on computer chips, pharmaceuticals, and steel to encourage U.S. production.
- Trump also hinted at 25% duties on imports from Canada and Mexico, with additional threats to the EU and China.
- Treasury Secretary nominee Scott Bessent proposed a universal tariff starting at 2.5%, which would increase monthly.
These announcements caused uncertainty, pushing the dollar index up by 0.2% to 108, after it had dropped the previous day.
Currency Movements
- Euro: Fell 0.7% to $1.04155.
- British Pound: Dropped 0.6% to $1.2425.
- Canadian Dollar: Eased 0.27% to 1.4412 per U.S. dollar.
- Japanese Yen: Dollar rose 0.6% to 155.38 yen.
- Swiss Franc: Dollar gained 0.47% to 0.9061.
DeepSeek AI Raises Concerns
On Monday, Chinese startup DeepSeek introduced a free, open-source AI model, which raised questions about the dominance of U.S. AI leaders like Nvidia.
- This added to the risk-off sentiment in global markets, creating uncertainty in both currency and equity markets.
Upcoming Central Bank Meetings
- The Federal Reserve begins its two-day meeting on Tuesday.
- Investors expect interest rates to stay steady but are watching for hints of future rate cuts.
- The European Central Bank is also expected to cut interest rates later this week.
Outlook
The combination of U.S. tariffs, AI competition, and central bank decisions is expected to drive further volatility in the currency market. Investors remain cautious as they monitor how these developments will impact global trade and financial stability.
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