Finance
Dollar slides as trade war risk recedes, yen rallies
Published by Global Banking & Finance Review®
Posted on February 5, 2025
3 min readLast updated: January 26, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on February 5, 2025
3 min readLast updated: January 26, 2026
The US dollar declines as trade war fears ease, while the yen strengthens on strong wage data. US tariffs impact global currency markets.
By Harry Robertson
LONDON (Reuters) -The U.S. dollar fell to its lowest in more than a week on Wednesday as investor nerves about a global trade war abated, while the Japanese yen rallied on the back of strong wage data.
The dollar index, which tracks the currency against six peers, was last down 0.49% at 107.52, having touched its lowest since Jan. 24 at 107.37 earlier in the European session.
As U.S. President Donald Trump looked set on Monday to impose 25% import tariffs on Mexico and Canada, the dollar jumped as much as 1.3% to 109.88.
It has since fallen around 2% after both Mexico and Canada won a one-month reprieve by beefing up border security, although the U.S. did increase levies on China.
"This morning’s dollar pullback looks like an extension of recent trends, with markets continuing to price out tariff risks from FX markets," said Nick Rees, head of macro research at Monex Europe.
Yet Rees said he thought currency markets were underestimating the damage tariffs could still do to the global economy.
"There is now minimal tariff premia priced into FX pairs, and much less than we would expect," he said.
The euro rose 0.34% to $1.0416 after dropping as much as 2.3% on Monday on fears about the global impact of tariffs and a possible extension of levies to the European Union.
The dollar fell most sharply on Wednesday against the yen, which was boosted by strong Japanese wage data and comments from a Bank of Japan official hinting at further rate hikes.
The U.S. currency was last 0.9% lower after earlier falling to 152.55 yen, its lowest since Dec. 13.
Data showed Japan's December inflation-adjusted real wages rose 0.6% year-on-year thanks to a wintertime bonus bump.
That left traders increasing bets on more BOJ rate hikes this year, with just over 30 basis points priced in by the year-end.
"The data still argues that the BoJ could certainly hike on two more occasions this year, which is certainly not priced," said Derek Halpenny, a senior foreign exchange strategist at MUFG.
Sterling meanwhile was up 0.43% after hitting its highest in a month at $1.255.
YUAN DIPS ON CHINA TARIFFS
Trump's imposition of new, 10% tariffs on China knocked the yuan slightly on Monday as markets returned from an extended Lunar New Year break.
The yuan fell 0.48% to 7.272 in onshore trading, though its gains were capped by the People's Bank of China setting a stronger-than-expected midpoint rate, around which the currency is allowed to trade in a 2% band.
Investors had watched the fixing for clues on whether Beijing would allow the yuan to weaken to blunt the impact of the trade measures.
China on Tuesday imposed its own tariffs on imports from the U.S. in a swift response, and Trump said the same day he was in no hurry to speak to Chinese President Xi Jinping to try to defuse the situation.
"China's retaliation when it comes to the tariffs that have been announced and the investigations into Google ... all in all it’s actually been relatively mild," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
During Trump's first term as president, the yuan was allowed to weaken more than 12% against the dollar to help make Chinese goods more competitive.
(Reporting by Harry Robertson in London; Additional reporting by Rae Wee in Singapore; Editing by Kim Coghill, Angus MacSwan and Kevin Liffey)
The article discusses the decline of the US dollar and the rise of the yen amid easing trade war fears and strong Japanese wage data.
The dollar initially rose due to tariff announcements but fell as Mexico and Canada received a reprieve.
The yen strengthened due to strong wage data and potential Bank of Japan rate hikes.
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