Forex Today: Markets remain on edge as Trump tariffs take effect

Here is what you need to know on Tuesday, March 4:

Following Monday's volatile action, investors cling to a cautious stance early Tuesday, while assessing the latest developments surrounding the US tariff policy and retaliatory measures against it. The economic calendar will not offer any high-impact data releases. Later in the day, several Federal Reserve (Fed) policymakers will be delivering speeches.

US President Donald Trump's 25% tariffs on Canadian and Mexican imports, as well as the additional 10% on Chinese goods, took effect early Tuesday. In response, Canada said that they will start imposing reciprocal 25% tariffs on US imports worth about 30 billion Canadian Dollar and noted that they are in active and ongoing discussions with provinces and territories to pursue several non-tariff measures. Meanwhile, China's Commerce Ministry announced on Tuesday that it would slap additional tariffs of up to 15% on US imports of key farm products, including chicken, pork, soy and beef. Mexican President Claudia Sheinbaum is expected to announce her response in a news conference in Mexico City later in the day.

After ending the previous week on a bullish note, the US Dollar (USD) Index turned south in the second half of the day on Monday and closed the day deep in negative territory. Early Tuesday, the index fluctuates in a tight channel at around 106.50. In the meantime, the benchmark 10-year US Treasury bond yield stays below 4.2% following Monday's decline and US stock index futures trade marginally higher on the day.

EUR/USD benefitted from the selling pressure surrounding the USD and rose more than 1% on Monday, erasing a majority of last week's losses in the process. Early Tuesday, the pair fluctuates near 1.0500.

GBP/USD gathered bullish momentum and advanced to the 1.2700 area on Monday. The pair stays in a consolidation phase in the European morning on Tuesday.

During the Asian trading hours, the data from Australia showed that Retail Sales increased by 0.3% on a monthly basis in January, as expected. The minutes of the Reserve Bank of Australia's (RBA) February monetary policy meeting showed that policymakers did not commit to additional rate cuts but placed more weight on the downside risks to the economy. AUD/USD stays under modest bearish pressure early Tuesday and trades at around 0.6200.

Despite the broad USD weakness, USD/CAD closed marginally higher on Monday. The pair holds its ground early Tuesday and trades near 1.4500.  After rising nearly 0.7% on Monday, USD/MXN continues to push higher and was last seen trading at its strongest level in a month at 20.8480, rising about 0.8% on the day.

Gold capitalized on the risk-averse market atmosphere and rose more than 1% on Monday. XAU/USD trades within a touching distance of $2,900 in the European morning on Tuesday.