The dollar rallied on Tuesday, while European shares fell, after U.S. President-elect Donald Trump pledged tariffs on all imports from Canada and Mexico, and extra tariffs on China.

European equities traded in negative territory, led by steep declines across a range of sectors, including car companies and steelmakers, some of the potential losers from any Trump-imposed tariffs on the European Union.

The Mexican peso and Canadian dollar came under pressure, while the euro shrugged off earlier weakness.

S&P 500 futures rose 0.2%, paring their overnight losses and pointing to another leg higher at the open in the cash index following Monday's 0.3% gain.

"The dollar's had a knee-jerk move higher, the Canadian dollar's softer, the peso is softer and the equity reaction - particularly in Europe - makes sense," Pepperstone senior market strategist Michael Brown said.

"Because the market's thinking, 'well, what's the one country or the one bloc that's likely to be next'? It's probably going to be the EU. So naturally you're going to be short European equities this morning," he said.

The STOXX 600 was down 0.3% by midday in Europe, with shares like Volkswagen and Stellantis - the maker of Chrysler, Dodge and Fiat - down 2-4.7%. ArcelorMittal, the world's second-largest steelmaker, was down 3%, while Finland's Outokumpu lost 1.35%.

The weekend nomination by Trump of Scott Bessent as Treasury Secretary triggered a wave of positive sentiment on Monday that boosted stocks and bonds, as the fund manager is viewed as a voice for Wall Street in Washington.

But Tuesday's tariff announcement undid much of that optimism.

"It's almost as if Trump wants to remind markets who is in control, after nominating Scott Bessent as Treasury Sec - a man markets expected to cool Trump's potency," said Matt Simpson, senior market analyst at City Index.

"With the Canadian dollar rising against the Mexican peso, markets are assuming this will hit Mexico the hardest."

DOLLAR BOUNCES

The dollar jumped as much as 2.3% to 20.75 Mexican pesos and was last up 0.9% on the day, and rose 0.7% against the Canadian dollar to C$1.4096.

It was up 0.1% at 7.2548 yuan in offshore trading, after earlier reaching the highest since late July at 7.2730 yuan.

"It was just last month that Trump said that 'the most beautiful word in the dictionary is tariff', so there really should not have been a surprise in Trump's intention, just in the timing of the comments," said Sean Callow, a senior FX analyst at ITC Markets.

Trump said in a post on Truth Social that on his first day in office he would impose a 25% tariff on all products from Mexico and Canada, and an additional 10% tariff on goods from China, citing concerns over illegal immigration and the trade of illicit drugs.

Trump has previously threatened to slap tariffs on Chinese imports in excess of 60%.

"Our view remains that tariffs will eventually not end up as bad as feared, but we will see increased uncertainty over the coming months. Waking up to check the tweets for any policy announcements could become the norm," Jefferies strategist Mohit Kumar said.

The euro was last up 0.4% at $1.05395, having earlier traded down by as much as 0.7%, while the pound was up 0.3% at $1.2608.

At the same time, the dollar weakened 0.7% to 153.175 yen , after initially strengthening following Trump's tariff remarks.

The dollar-yen pair tends to track long-term U.S. Treasury yields, which ticked up about 1.6 basis points to 4.279% in Europe, after Monday's 15 basis-point fall.

Bitcoin fell nearly 2% to $91,950, easing further from last week's record high at $99,830. The token has benefited from speculation of an easier regulatory environment for cryptocurrencies under Trump.

Gold lifted off a one-week low to trade 0.26% higher on the day at $2,632 an ounce, as the dollar rally lost some momentum.

Oil prices recovered slightly from the previous session's 2.8% drop as investors mulled the implications of a potential ceasefire between Israel and Hezbollah.

Brent crude futures were up nearly 1% at $73.71 a barrel, while U.S. futures were also up 1% at $69.62 a barrel.