Trump’s tariff threats signal the start of a wild ride in currency markets

President-elect Donald Trump's vow to implement additional tariffs on China, Canada and Mexico on day one of his presidency signals the start of a wild ride in currency markets, strategists say, warning it would be risky for investors to underestimate the impact on foreign exchange rates.

Trump said Monday he would sign an executive order on Jan. 20 imposing a 25% tariff on all goods coming from Canada and Mexico, a move that could violate the terms of a regional free trade agreement.

The former president, who has previously called tariff "the most beautiful word in the dictionary," also said he plans to raise tariffs by an additional 10% on all Chinese products coming into the U.S.

The announcements prompted a knee-jerk reaction in currency markets, with the U.S. dollar rising more than 2% against the Mexican peso and notching a four-year high against the Canadian dollar.

"I think the first reaction here is that investors should get ready for a wild ride in FX volatility," said Kamakshya Trivedi, head of global foreign exchange, interest rates and emerging markets strategy research at Goldman Sachs.

The U.S. dollar index, which measures the greenback against six major currencies, was 0.25% higher at 106.89 on Tuesday. The index closed 0.6% lower in the previous session as investors welcomed hedge fund manager Scott Bessent as Trump's pick for U.S. Treasury chief.

The euro and pound sterling were both trading little changed against the dollar, paring earlier gains.

"This is going to be something that we are all going to have to get used to. It is going to be volatile moves in FX markets because, you know, currencies are to some extent the primary means of responding to any sort of tariff announcement," Trivedi told CNBC's