By Chibuike Oguh and Greta Rosen Fondahn
NEW YORK/GDANSK (Reuters) -The U.S. dollar advanced against the yen on Tuesday amid fresh tariff threats from the Trump administration and as concerns over the emergence of a low-cost Chinese artificial intelligence model faded.
President Donald Trump said on Monday he planned to impose tariffs on imported computer chips, pharmaceuticals and steel in an effort to persuade the producers to make them in the United States.
Treasury Secretary Scott Bessent, who was confirmed by the U.S. Senate on Monday, has also been pushing for new universal tariffs on U.S. imports to start at 2.5% and rise gradually by the same amount each month, according to a Financial Times report.
The renewed focus on tariffs had traders reversing some of the risk-off moves made on Monday as Chinese startup DeepSeek’s free open-source AI model challenged the widely held belief of the dominance of U.S. AI giants such as Nvidia and OpenAI.
The dollar advanced 0.6% to 155.52 against the Japanese yen, on course to snap three straight sessions of losses. Against the Swiss franc, the dollar strengthened 0.21% to 0.904, on track to snap two consecutive days of declines.
“I think that there are two stories here that happened simultaneously and one is kind of wearing off,” said Steve Englander, head of G10 FX research at Standard Chartered Bank in New York.
“The issues in the AI space were initially risk-off from an equity viewpoint. And that led the dollar to appreciate against basically all high beta currencies and the yen and Swiss did OK in that world because they’re safe havens. Then came the Trump comments on tariffs, which affected currencies differently.”
Trump’s latest tariff threats came a day after the U.S. and Colombia pulled back from the brink of a trade war when the White House said the South American nation had agreed to accept military aircraft carrying deported migrants.
Trump has also flagged possible 25% duties on imports from Canada and Mexico on Feb. 1, and has threatened to hit the EU and China with tariffs as well.
The euro fell 0.55% at $1.0433. Sterling weakened 0.45% to $1.244, while the Canadian dollar weakened 0.2% versus the greenback to C$1.44 per dollar. The Mexican peso strengthened 0.76% versus the dollar at 20.505, a day after recording its biggest daily loss since June last year.
The Federal Reserve’s two-day meeting ends on Wednesday after which it is expected to keep interest rates steady. The European Central Bank will also meet this week, and is expected to cut interest rates. The Bank of Canada is widely expected to most likely trim its key benchmark rate by 25 basis points on Wednesday.
The Bank of Japan will likely raise interest rates again around June or July, and seek to triple its policy rate to at least 1.5% in the next two years, former BOJ board member Makoto Sakurai said. The BOJ had raised short-term interest rates to 0.5% from 0.25% last week.
Bitcoin gained 0.62% to $101,980.48. Ethereum declined 0.91% to $3,131.57.
“Right now for the Federal Reserve tomorrow, I think the only thing on their mind is: how do we just steer a steady ship because we’re none-the-wiser since inauguration on the tariff or trade side of things?” said Amarjit Sahota, executive director at Klarity FX in San Francisco.
“We know the government wants to spend less as well. I don’t think it’s moved the needle too much on the interest rate expectations from the Fed. We are still barely pricing in a rate cut from the Fed by the summer.”
(Reporting by Chibuike Oguh in New York and Brigid Riley in Tokyo and Greta Rosen Fondahn in Gdansk; Editing by Marguerita Choy)
