By Rae Wee and Greta Rosen Fondahn
SINGAPORE/GDANSK (Reuters) -The dollar fell on Friday, on track to log its worst week in more than a year, after U.S. President Donald Trump suggested a potentially softer stance on tariffs against China which added to uncertainties around U.S. trade policies.
The yen pared initial gains against the dollar after the Bank of Japan hiked rates on Friday and revised up its inflation forecasts, but offered few clues on the timing and pace of future rate hikes.
Investors have sold the dollar in the wake of Trump’s inauguration after his widely expected tariff announcements did not immediately materialise, unlike his threats during his campaign.
In an interview with Fox News that aired on Thursday evening, Trump said he would rather not have to use tariffs over China and that he thought he could reach a trade deal with the world’s second-largest economy.
“This seems to feed into the growing sense that Trump is underdelivering on protectionism compared to pre-inauguration remarks, and that ultimately some of those tariff threats may not materialise as long as some concessions are made on trade,” said Francesco Pesole, currency strategist at ING.
The Chinese yuan got a lift on the back of Trump’s remarks, with the onshore unit rising to its strongest level in eight weeks at 7.2370 per dollar.
The U.S. president also said on Thursday that he wants the Federal Reserve to cut interest rates.
Trump’s remarks came just days before the Fed’s first policy meeting to be held during his administration, with very broad expectations officials will leave rates unchanged.
The dollar index, which measures the greenback against a basket of currencies, was on track for its biggest weekly fall since November 2023, set to lose more than 1.6% on the week.
The index hit a one-month trough of 107.27 on Friday, and was last down 0.5% at 107.6.
The euro, meanwhile, was up 0.65%, having touched its highest since Dec. 17 at $1.0515. The single currency was headed for a roughly 2% weekly gain.
Data showed on Friday that euro zone business began the new year with a modest return to growth, as stable services activity in January was complemented by an easing of the long-running downturn in manufacturing.
Sterling advanced 0.5% to $1.2417 and was similarly poised for a rise of 2% for the week, snapping three straight weeks of losses.
BOJ HIKES
The Bank of Japan raised rates by 25 basis points at the conclusion of its two-day policy meeting, in a move that had been well telegraphed by policymakers prior to the outcome.
The yen rose to 154.845 per dollar following the policy decision, but pared gains after Governor Kazuo Ueda’s press conference, where he said that a rise in underlying inflation was “moderate” and the central bank was not “seriously behind the curve”, suggesting no rush to tighten policy again.
The yen was last unchanged at 156 per dollar.
“There’s more than just the Japanese economy and wages that determine when the next BOJ rate hike can come, and the global uncertainties from Fed’s slowing rate cuts and the risk of tariffs in the new Trump administration remain out of Ueda’s control,” said Charu Chanana, chief investment strategist at Saxo.
Earlier on Friday, data showed Japan’s core consumer prices rose 3.0% in December from a year earlier to mark the fastest annual pace in 16 months.
In cryptocurrencies, bitcoin was last 2.2% higher at $105,435.
Trump on Thursday ordered the creation of a cryptocurrency working group tasked with proposing new digital asset regulations and exploring the creation of a national cryptocurrency stockpile, making good on his promise to quickly overhaul U.S. crypto policy.
(Reporting by Rae Wee in Singapore and Greta Rosen Fondahn in Gdansk; Additional reporting by Brigid Riley; Editing by Jacqueline Wong, Shri Navaratnam, Kim Coghill, Emelia Sithole-Matarise and Alison Williams)
