USD: Transactional Trump fires up tariff threat - ING

European FX markets are on the move today as they digest the first of President-elect Trump's late-night social media posts on economic policy. His post threatened to enact 25% across-the-board tariffs on imports from Canada and Mexico unless they tightened border security to address the flows of illegal immigrants and drugs, particularly Fentanyl. China was threatened with an additional 10% on any current tariffs for not doing enough to address Fentanyl flows as well. His post on Truth Social said he'd use executive orders to make this happen - which he could potentially do under the US International Emergency Economic Powers Act (IEEPA), ING's FX analyst Chris Turner notes.

DXY to stay bid in the 107-108 range

"Whilst most in the market assume that Trump will be using tariffs as a large bargaining stick - in this case to tighten US border controls - we would be careful of dismissing their market impact as some grandstanding. If 25% tariffs came close to seeing the light of day in Mexico, USD/MXN would be a 24/25 story, not just 21. We already think the currencies of Mexico and Canada will have a tougher Trump 2.0 than they did during his first term."

"The above can help set the tone in FX markets into year-end - namely that Trump stands to deliver on his pre-election promises. These policies are generally positive for the dollar. Although the final outcome of the tariff threat may be less severe once negotiations are concluded, we recommend adopting a defensive stance in FX markets for the time being."

"Two further inputs today should be USD positive too. The first should be a decent bounce in November US consumer confidence after Trump's win earlier this month. The second should be a mildly less dovish set of FOMC minutes, where the Fed might have acknowledged that some of the downside risks to the economy had receded ahead of that policy meeting on 7 November. DXY is to stay bid in the 107-108 range."