Forex Today: US Dollar rallies as Trump delivers on tariff threats

Here is what you need to know on Monday, February 3:

The US Dollar (USD) gathers strength on the first trading day of February as markets adopt a cautious stance in reaction to US President Donald Trump's tariff announcements. Later in the European session, January inflation data from the Euro area will be watched closely by investors. In the second half of the day, the US economic calendar will feature ISM Manufacturing PMI data for January. Meanwhile, market participants will keep a close eye on headlines surrounding the Trump administration's trade policies.

Trump announced on Saturday that they will impose sweeping 25% tariffs on Mexican and Canadian imports and 10% on Chinese goods entering the US. In response, Canadian Prime Minister Justin Trudeau set out "far-reaching" 25% tariffs on US goods, worth more than $100 billion. Similarly, Mexican President Claudia Sheinbaum announced on Saturday that she ordered retaliatory tariffs against the US. While speaking to reporters on Sunday, Trump said that he would "definitely" impose tariffs on European imports but refrained from providing any details regarding the size or the timing.

In the European morning on Monday, US stock index futures are down between 1.5% and 2.5%. In the meantime, the USD Index is up nearly 1% on the day at around 109.50.

EUR/USD opened with a large bearish gap and was last seen trading slightly below 1.0250, losing more than 1% on a daily basis. In the Euro area, the core Harmonized Index of Consumer Price is forecast to rise 2.6% on a yearly basis in January.

Pressured by the broad-based US Dollar strength, GBP/USD stays on the back foot early Monday and trades below 1.2300.

During the Asian trading hours, the data from Australia showed that Retail Sales declined by 0.1% on a monthly basis in December. This reading came in better than the market expectation for a decrease of 0.7% but failed to help the Australian Dollar (AUD) find support. At the time of press, AUD/USD was down 1.2% on the day at 0.6140.

USD/CAD shot higher at the weekly opening and rose above 1.4700 for the first time since 2003. Similarly, USD/MXN gathered bullish momentum and climbed to its highest level in nearly three years at 21.2951 before retreating slightly.

After setting a new record-high above $2,800 on Friday, Gold corrects lower on Monday and trades below $2,790.