The US dollar experienced a notable increase against the Japanese yen on Tuesday, bolstered by new tariff threats from the Trump administration and the fading concerns surrounding a low-cost Chinese artificial intelligence (AI) model. This shift comes after a period of weakness for the greenback, as traders recalibrated their positions following global economic developments.
On Monday, President Donald Trump made headlines by announcing plans to impose new tariffs on imported computer chips, pharmaceuticals, and steel, with the intention of encouraging production within the United States. Trump’s proposal is part of a broader push to reduce the nation’s reliance on foreign manufacturing, specifically in critical sectors such as technology and pharmaceuticals. Treasury Secretary Scott Bessent, confirmed by the US Senate earlier this week, has also been advocating for the implementation of universal tariffs on US imports, beginning at 2.5% and gradually increasing each month, as reported by the Financial Times.
The focus on tariffs revived market attention, with traders reassessing risk sentiment. The previous day had seen some volatility in global markets following concerns that a low-cost AI model from the Chinese startup DeepSeek could challenge the market dominance of US tech giants like Nvidia and OpenAI. However, as those concerns started to subside, the US dollar regained strength, reversing some of the risk-off sentiment that had previously dampened its performance.
The dollar rose by 0.65% against the Japanese yen, reaching 155.5, and was on track to break a three-day streak of losses. Similarly, against the Swiss franc, the US dollar strengthened by 0.24% to 0.904, putting an end to two consecutive days of declines. The uptick was attributed to the combined effect of Trump’s tariff statements and the reduction in AI-related concerns.
Steve Englander, head of G10 FX research at Standard Chartered Bank in New York, explained the market’s response to the dual events: “There are two stories here that happened simultaneously, and one is kind of wearing off,” he said. “The issues in the AI space were initially risk-off from an equity viewpoint, leading to the dollar appreciating against most high-beta currencies. The yen and Swiss franc held up because they are seen as safe havens. Then came the Trump comments on tariffs, which affected currencies differently.”
The tariff threats from Trump were particularly notable in the wake of a recent trade dispute between the US and Colombia. However, tensions between the two nations eased when Colombia agreed to accept military aircraft carrying deported migrants. Trump’s remarks also came just ahead of his announcement of potential 25% duties on imports from Canada and Mexico, set to take effect on February 1. Additionally, the president has threatened to impose tariffs on both the European Union and China, further escalating trade concerns.
The broader impact of these developments was seen in currency movements. The euro fell by 0.51%, trading at $1.0437, while the British pound weakened by 0.44%, reaching $1.2441. The Canadian dollar lost 0.07% against the greenback, trading at C$1.44 per dollar. On the other hand, the Mexican peso strengthened by 0.38% to 20.595 per dollar, recovering from its biggest daily loss since June of the previous year.
The US Dollar Index, which tracks the performance of the greenback against a basket of major currencies, rose by 0.05% to 107.85. Market participants were also keenly awaiting the start of the Federal Reserve’s two-day meeting, where it is expected that interest rates will remain unchanged. Meanwhile, the European Central Bank is also set to meet this week, with expectations that it will announce a cut in interest rates. In Japan, the Bank of Japan is likely to raise interest rates later in the year, with former BOJ board member Makoto Sakurai suggesting that the central bank may aim to triple its policy rate to at least 1.5% over the next two years.
As the global financial landscape continues to evolve with trade tensions, central bank policies, and emerging technologies, the strength of the US dollar remains a key focal point for traders and investors worldwide. The recent movements reflect how economic and geopolitical factors continue to influence currency markets, with the greenback benefiting from a mix of tariff rhetoric and fading AI concerns.