Tokyo: On Tuesday, the dollar strengthened against the yen and euro due to fresh U.S. tariff threats, leaving traders with little opportunity to regroup after the significant risk-off shifts on Monday, prompted by worries that U.S. leadership in artificial intelligence technology could be faltering. Any market optimism that President Donald Trump curtailed by not increasing tariffs on U.S. trading partners right after assuming office last week has swiftly dissipated. Trump stated he intended to levy tariffs on imported computer chips, pharmaceuticals, and steel to encourage manufacturers to produce them in the United States. That verbal attack occurred a day after the U.S. and Colombia stepped back from the edge of a trade war when the White House announced the South American country had consented to accept military planes transporting deported migrants.
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According to Sim Moh Siong, a currency strategist at the Bank of Singapore, the dollar has experienced significant fluctuations due to changing headlines about the tariffs and their aggressiveness. "It's challenging to predict with certainty what the trend will be for the next 24 hours since, as we've seen in recent days, much of it is influenced by the headlines." The euro traded at $1.0435, reflecting a decrease of 0.54 per cent as tariff concerns emerged. Trump has indicated potential 25 per cent tariffs on imports from Canada and Mexico starting February 1 and has warned of imposing tariffs on the EU and China too.
Dollar Index Gains Amid Tariff Focus and DeepSeek's AI Disruption
The dollar index, which evaluates the U.S. dollar against six competitors, increased by 0.08 per cent to 107.89, following a decline to its lowest point since mid-December at 107.68 the day before. "Tariffs will continue to be a major focus for now, ...particularly as we approach the February 1st deadline," stated Kieran Williams, head of Asia FX at InTouch Capital Markets.
Dollar strengthens, tariffs, AI concerns, market volatility.
Market participants will be assessing if the newly appointed U.S. Treasury Secretary Scott Bessent supports a gradual tariff strategy, he mentioned. The emphasis on tariffs led traders to undo some of the significant risk-off actions taken on Monday, as Chinese startup DeepSeek's free open-source AI model cast doubt on the exorbitant valuation and supremacy of U.S. AI leaders such as Nvidia. The yield on standard 10-year Treasury notes recovered during Asian hours after falling to a one-month low of 4.561 per cent the day before.
The yen returned to its recent trading range against the dollar after safe-haven demand lifted the Japanese currency to its highest point since mid-December at 153.715 on Monday. The dollar rose 0.84 per cent to 155.79 yen against the yen. The Federal Reserve will start its two-day meeting on Tuesday, where it is anticipated to maintain interest rates. Investors will seek indications regarding a potential rate cut in the near future if inflation approaches the U.S. central bank's annual target of 2 per cent. For the Fed, attention will be on Trump's initial actions regarding wider policies that are expected to influence the economy this year.
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Federal officials have acknowledged possible impacts from Trump's policies on trade, immigration, and more, as staff at the December meeting incorporated expectations for moderately slower growth, increased unemployment, and minimal advancements in inflation for the upcoming year. The European Central Bank is set to convene this week and is anticipated to lower interest rates. Sterling was last seen at $1.2447, declining by 0.43 per cent for the day. The risk-sensitive Australian and New Zealand currencies prolonged their declines. Bitcoin, the most recognized cryptocurrency globally, increased by 1.72 per cent to reach $103,091.61.