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Trump tariff risk still tops market worry list

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Canadian dollar, euro could weaken more: analysts

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Autos sector firmly in losing camp too

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China's yuan buffered for now

LONDON, Feb 7 (Reuters) - U.S. President Donald Trump's

ability to swiftly impose, and then delay, tariffs on top

trading partners has left world markets swinging one way and

then another.

Last weekend, for example, he announced sweeping tariffs on

Canada, Mexico and China, and then on Monday he announced

one-month delays for Canada and Mexico.

These moves show that the risk of a global trade war that hurts

economic growth and fuels inflation remains high.

"The warning shot that has been fired by the White House has

confused the world at large," said Tina Fordham, founder and

geopolitical strategist at Fordham Global Foresight.

"Who's next? How will we know if we will be on the sharp end

of U.S. tariff ire? And how do we respond? Acquiesce, or hit

back?"

Here's where some hard-hit markets stand almost a week after

Trump launched his salvo:

1/ SHAKEN LOONIE

Canada's dollar, has been in the firing line, briefly

hitting over 20-year lows before rebounding on the tariff delay,

leading to its largest single-day swing in nearly five years.

But the reprieve for the so-called Loonie may not last since

the prospect of 25% tariffs remains.

Even if tariffs are avoided, uncertainty could weigh on business

activity, keeping Canada on a rate-cutting path.

The loonie ended January down for the fifth straight month,

its longest losing streak since 2016; currency volatility

remains high. CBA forecasts dollar/Canadian dollar at 1.52 by

the third quarter, from 1.44 now.

2/ VOLATILE PESO

Volatility has been embedded in Mexico's currency since last

year, when it lost almost a fifth of its value against the

dollar.

The tariff threats, direct and indirect, have seen the peso fall

as much as 2.2% this year, and also gain as much as 3.5%.

In a scenario of 25% tariffs, Wall Street analysts expect

the Mexican economy to fall into a recession. The peso, which

ended January at 20.678 per dollar, is seen weakening to as much

as 22 or further per dollar according to BBVA.

This would imply a weakening of more than 7% from current

levels.

The peso hasn't traded beyond 22 since November 2021.

3/ EURO DOUBLE WHAMMY

Trump says the European Union is next in line for tariffs,

keeping the euro under pressure.

It has slid 5% since the U.S. election, one of the biggest

fallers among major currencies, briefly hitting $1.0125 on

Monday -- the lowest since late 2022.

Nearly one-third of strategists polled by Reuters reckon the

euro could fall to $1 within a year as trade uncertainty hurts

the economy.

The U.S. is the EU's most important trading partner, with $1.7

trillion in two-way goods and services trade.

Further denting the euro, markets anticipate the European

Central Bank will cut rates by around 40 basis points more than

the Federal Reserve will this year.

Europe could also be a big loser in a U.S.-China trade war.

"If Chinese goods cannot reach the U.S., they will end up in

Europe adding to disinflationary pressure," said George

Saravelos, Deutsche Bank's global head of FX research.

4/ CAR TROUBLE

Autos, already pummeled by trade worries, may be in the

losing camp - although they too have felt some relief in recent

days.

Stellantis ( STLA ), which owns the Fiat and Peugeot

brands, and Germany's Volkswagen posted share-price

falls of more than 7% on Monday before recovering.

European autos share valuations are particularly depressed.

Rivals are also fretting.

Ford CEO Jim Farley reckons the U.S. carmaker could weather

a few weeks of tariffs, but prolonged 25% duties on Mexico and

Canada "would have a huge impact on our industry, with billions

of dollars of industry profits wiped out, and an adverse effect

on the U.S. jobs."

Japan's Nissan ( NSANF ), Toyota ( TM ) and Honda ( HMC ) make

some of their most popular U.S. models in Canada or Mexico, so

tariffs could hurt them as well.

5/ CHINA SHRUGS

China is the only major trading partner Trump has actually

imposed tariffs on, with a limited reaction so far.

The closely managed yuan is slightly stronger than it was

right before Trump took office, and Hong

Kong and mainland shares are higher.

Bank of Singapore chief economist Mansoor Mohi-uddin believes

one reason for this is that China's initial retaliation has been

muted, with tariffs on select U.S. exports to China that

amounted to just $14 billion in exports last year.

This leaves "the door open for a potential deal between

Washington and Beijing to avert a more damaging broader trade

war," he said.

U.S. levies on China are also well below the 60% Trump

threatened during the election.

China meanwhile has not allowed the yuan to weaken sharply

to mitigate the tariff impact. Concern about the damage a weak

currency would have on investor confidence, and relations with

other trading partners, has prevented Beijing from allowing a

significantly weaker yuan, analysts say.