07:25 AM EST, 01/31/2025 (MT Newswires) -- USD/CAD and USD/MXN both spiked sharply late Thursday after United States President Donald Trump repeated his plan to implement tariffs on Saturday as he originally stated, said Mitsubishi UFG.

USD/CNH also jumped notably with Trump confirming planned action against China as well. The broader foreign exchange market reaction has been more muted and there's a sense that investors remain skeptical that the plan will be fully implemented as outlined by Trump at this stage, wrote the bank in a note to clients.

USD/CAD and USD/MXN have retraced some of the spike higher, pointed out MUFG.

It's been reported that Trump is scheduled to sign executive orders at 3 p.m. ET on Friday which if related to tariffs would allow for a financial market reaction toward the close of trading for the week in New York, stated the bank. Liquidity in foreign exchange at that stage of the trading day isn't great and certainly points to the potential for "big" swings.

It is also month-end and those flows can often dilute a response to a macro event which may also partially explain the limited US dollar (USD) gains on the back of Trump's confirmation that tariffs are indeed coming, added MUFG. One element of uncertainty is the speed at which the proposed tariffs could be implemented.

There as some procedures involved in declaring an emergency that can then prompt tariffs. The quickest way to implement trade tariffs would be possibly through the International Emergency Economic Powers Act (IEEPA) with Trump using illegal immigration and illegal narcotics coming over the borders as a national emergency.

For example, in 2019, President Trump threatened to impose tariffs on Mexico under his IEEPA powers. The proposed tariffs were announced on May 30, 2019, with an effective date of June 10 with a tariff rate starting at 5%, and increasing monthly. This was done under a declaration of a national emergency due to the immigration crisis at the border with Mexico. The decision was reversed before the tariffs became effective.

So market participants may be assuming that while the tariffs could be confirmed later on Friday or on Saturday, there could still be a period of a week or more before the tariffs are actually activated.

Whatever the logic there appears to still be a high level of skepticism, according to the bank. The quick turnaround after the tariff announcement on Colombia may also be curtailing the financial market impact at this stage.

MUFG stated earlier this week it could quickly see USD/CAD break higher to the 1.5000 level and above quickly with a similar percentage move in USD/MXN as well. A 10% tariff on China is more in the price for USD/CNY but if this action is confirmed it will lift expectations of more to come more widely, possibly using the same IEEPA powers ahead of the completion of investigations due by April 1.

Ultimately, the bank still foresees Trump to be more active in implementing trade tariffs and the US dollar has ample scope to rebound and the initial more pragmatic approach is unlikely to last.