Markets remain quite subdued despite President Trump indicating late yesterday that 25% tariffs on Canada and Mexico will be announced this weekend, Scotiabank's Chief FX Strategist Shaun Osborne notes.

Markets remain calm overall

"The CAD wobbled but quickly steadied, ditto for the MXN. The USD is a little higher overall today but stocks are positive and bonds are mostly firmer. Treasurys are underperforming modestly. It’s all pretty calm in the face of the potential cataclysm that most hoped would be avoided."

"Universal and aggressive tariffs on Mexican and Canadian products will be enormously disruptive the domestic economies but will also raise prices for US consumers and be particularly damaging for the US auto and food industries. The calm market reaction suggests investors feel that tariffs are leverage and will not be sustained. There are also reports suggesting that Trump’s advisors are looking for a lastminute off-ramp to avoid tariffs. Trading may be light into the weekend as investors await developments."

"If tariffs are imposed, the USD will strengthen broadly early next week. If there is a stay, the tariff bark will have sounded worse than its bite—can President Trump afford that?—and the USD is likely to drop back. US data reports this morning include the Q4 Employment Cost Index and Personal Income/Spending and PCE/core PCE data. Headline PCE may accelerate a little in December and while core trends are expected to remain steady at 2.8% Y/Y, reflecting the “sticky” nature of underlying trends in the core measure in recent months."