PoundSterlingLIVE - Official White House Photo by Tia Dufour.
U.S. President-elect Trump threatened 25% tariffs on Canada and Mexico on day one of his new administration in January and threatened a further 10% tariff on all products from China.
The comments were unexpected as previously it was thought Canada and Mexico were low-priority targets.
"The Canadian dollar reacted the most to the move as Canada has not been a prominent target in Trump’s tariff threats previously," says a note from Saxo Bank.
The Pound to Canadian Dollar exchange rate (GBP/CAD) is higher by 0.90% at the time of writing on Tuesday, having reached 1.7732. EUR/CAD is 0.77% higher at 1.4790 and USD/CAD is a per cent higher at 1.4122.
Trump's tariff comments were made on his Truth Social network, where he argued the tariffs were necessary to clamp down on migrants and illegal drugs flowing across borders.
He said China has failed to follow through on promises to institute the death penalty for traffickers of fentanyl.
"Until such time as they stop, we will be charging China an additional 10% Tariff, above any additional Tariffs, on all of their many products coming into the United States of America,” Trump said.
Trump had previously said he wanted to raise tariffs on Chinese goods by 60%, which raises questions as to why the hike has been downgraded to 10%.
Yet, for FX markets, the bigger surprise is the focus on Canada.
Trump vowed to hit Mexico and Canada with a 25% tariff on "ALL products," saying he would sign an executive order to that effect on his first day in office.
"As everyone is aware, thousands of people are pouring through Mexico and Canada, bringing Crime and Drugs at levels never seen before," he said. "This Tariff will remain in effect until such time as Drugs, in particular Fentanyl and all Illegal Aliens stop this Invasion of our Country!"
It is reported that Canadian Prime Minister Justin Trudeau contacted Trump following the post to discuss border security and trade.
Trudeau is said to have pointed out to Trump that the number of migrants who cross the Canadian border into the U.S. is minuscule compared to those who cross from Mexico.
An original version of this article can be viewed at Pound Sterling Live