Offshore Yuan Falls on Concerns Over Tariff Threats

By Ronnie Harui

Th U.S. dollar surged against neighboring currencies after President Trump said he plans to place 25% tariffs on imports from Canada and Mexico on Feb. 1, but there was some relief in Asian markets as investors adjusted to the new administration's policy priorities.

The U.S. dollar climbed 0.8% against the Canadian dollar and 1.0% versus the Mexican peso after Trump's comments. The greenback also strengthened against some Asian currencies Tuesday as Trump hinted that there could be tariffs coming on China and elsewhere. He also threatened an at least 100% tariff on BRICS nations, which includes China, Russia, India, Indonesia and Iran.

The U.S. Dollar Index was down 1.0% as the greenback fell 0.3% against the yen while rising 0.2% against the euro. Volatility in foreign-exchange markets could have picked up because of reduced liquidity on account of the Martin Luther King Jr. holiday in the U.S. on Monday.

Investors should be cautious about viewing dollar weakness as the start of a sustained downtrend, said Philip Wee, senior forex strategist at DBS Group Research.

Trade policies and tariffs require coordinated efforts across several departments, and the Senate has only confirmed Marco Rubio as secretary of state so far, he noted.

However, "we remain mindful that Trump's second-term cabinet, when in place, will deliver a broader, more coordinated, and far-reaching tariff policy than what was seen during his first term," Wee said.

Among Asian currencies, the dollar was 0.1% higher against its Singapore counterpart and 0.2% stronger against the Indian rupee, but was 0.1% lower versus the Korean won and was 0.3% weaker versus the Thai baht.

Asian equity markets were broadly higher, with Hong Kong's Hang Seng Index rising 1.1%, Japan's Nikkei Stock Average adding 0.1%, South Korea's Kospi gaining 0.1%, while Singapore's FTSE Straits Times Index shed 0.5%.

The market's reactions suggest that "considerable fear was embedded across the different asset classes," DBS Group Research Senior Rates Strategist Eugene Leow said in a note. "Some of this fear has now been unwound."

Trump's series of executive orders didn't include immediate changes to U.S. trade policy and held off on unveiling "day-one" tariffs, suggesting a shift to bilateral negotiations, CIMB analyst Michelle Chia and others said in a note.

Though Trump's comments on Mexico and Canada tariffs suggest he may be aggressive with trade measures, he also said he isn't ready to move ahead with universal tariffs on goods from around the world.

"We're not ready for that yet," Trump told reporters when asked about the idea of universal tariffs. He had campaigned on the use of universal tariffs of at least 10% on imports from a variety of countries.

The yield on the 10-year U.S. Treasury was down 7 basis points at 4.5370%. The absence of immediate tariffs at Trump's inauguration could provide Treasurys some relief but the dynamic may not last given his threats of tariffs on Canada and Mexico, DBS's Leow said.

Stricter immigration rules could lead to an even tighter labor market and stickier wage inflation, he added, though falls in U.S. yields will be limited as long as the economy holds up.

The combination of lower yields and a weaker dollar will be appreciated by emerging market and Asian government bonds, but volatility from rapid policy shifts looks set to be a regular feature during Trump's term, Leow said.

Oil dropped after Trump pledged to boost U.S. crude production, ANZ Research analysts said in commentary. Trump reiterated his goal to encourage more output by cutting red tape and allowing drilling on previously banned federal lands, the analysts noted.

This underlines his determination to reorient federal government policy behind oil and gas production, a sharp pivot from the Biden administration's efforts to curb fossil fuels, they added.

Front-month WTI crude oil futures dropped 0.7% to $77.36 a barrel and front-month Brent crude oil futures slipped 0.1% to $80.07 a barrel.

Write to Ronnie Harui at ronnie.harui@wsj.com

The offshore yuan weakened to around 7.28 per dollar, reversing a strong 1.1% gain from the previous session, as the US dollar rebounded following news of President Trump’s trade policies.

During his inaugural address, President Trump proposed 25% tariffs on Mexico and Canada and hinted at stricter tariffs on China.

He stated that tariffs on China might depend on a deal regarding TikTok's ownership, while also extending TikTok’s US operations for 75 days.

Meanwhile, the yuan found support in hopes of potential US-China negotiations, as Trump reportedly expressed interest in traveling to China after taking office.

Additionally, President Xi Jinping urged policymakers to implement more proactive macroeconomic policies this year to sustain growth momentum.

The People's Bank of China kept its key lending rates unchanged in January, maintaining the one-year Loan Prime Rate (LPR) at 3.1% and the five-year LPR at 3.6% to support economic stability amid external uncertainties.

By Ronnie Harui

Th U.S. dollar surged against neighboring currencies after President Trump said he plans to place 25% tariffs on imports from Canada and Mexico on Feb. 1, stoking broad volatility in asset classes as investors adjust to the new administration's policy priorities.

The U.S. dollar climbed 0.9% against the Canadian dollar and 1.1% versus the Mexican peso after Trump's comments. The greenback also strengthened against most Asian currencies as Trump hinted that there could be tariffs coming on China and elsewhere. He also threatened an at least 100% tariff on BRICS nations, which includes China, Russia, India, Indonesia and Iran.

The dollar rose 0.3% against the offshore Chinese yuan, 0.3% against the Singapore dollar, and 0.4% versus the Philippine peso.

The reaction in Asian equity markets was mixed with Hong Kong's Hang Seng Index inching 0.2% higher, the FTSE Bursa Malaysia KLCI Index rising 0.6%, while South Korea's Kospi fell 0.3% and Singapore's FTSE Straits Times Index shed 0.6%.

Though his comments on Mexico and Canada tariffs suggest he may be aggressive with trade measures, he also said he isn't ready to move ahead with universal tariffs on goods from around the world.

"We're not ready for that yet," Trump told reporters when asked about the idea of universal tariffs. He had campaigned on the use of universal tariffs of at least 10% on imports from a variety of countries.

Trump's series of executive orders didn't include immediate changes to U.S. trade policy and held off on unveiling "day-one" tariffs, suggesting a shift to bilateral negotiations, CIMB analyst Michelle Chia and others said in a note.

Oil dropped after Trump pledged to boost U.S. crude production, ANZ Research analysts said in commentary. Trump reiterated his goal to encourage more output by cutting red tape and allowing drilling on previously banned federal lands, the analysts noted.

This underlines his determination to reorient federal government policy behind oil and gas production, a sharp pivot from outgoing President Biden's efforts to curb fossil fuels, they added.

Front-month WTI crude oil futures dropped 1.5% to $76.74 a barrel and front-month Brent crude oil futures slipped 0.2% to $80.02 a barrel.

Write to Ronnie Harui at ronnie.harui@wsj.com

By Ronnie Harui

The U.S. dollar strengthened against most Asian and G-10 currencies early Tuesday after U.S. President Trump said he was aiming to place 25% tariffs on imports from Canada and Mexico on Feb. 1.

The U.S. dollar climbed 0.8% against the Canadian dollar and 0.9% versus the Mexican peso after Trump's comments.

The dollar strengthened against Asian currencies after Trump hinted that there could be tariffs coming on China and elsewhere. He threatened at least a 100% tariff on BRICS nations, which includes China, Russia, Indonesia, and Iran.

The dollar rose 0.2% against the offshore Chinese yuan, 0.2% against the Singapore dollar, and 0.3% versus the Indonesian rupiah.

Write to Ronnie Harui at ronnie.harui@wsj.com

USDCNY decreased to a 4-week low of 7.29.

Over the past 4 weeks, US Dollar Chinese Yuan lost 0.2%, and in the last 12 months, it increased 1.39%.

The latest Market Talks covering FX and Fixed Income. Published exclusively on Dow Jones Newswires throughout the day.

0422 GMT - China's yuan strengthens slightly against the dollar in the offshore and onshore markets. Friday's phone call between incoming U.S. President Donald Trump and Chinese President Xi Jinping augurs well for the yuan, Mizuho Securities Asia's Ken Cheung says in an email. The call alleviated fears of immediate U.S. tariff increases targeting China on the first day of Trump's second term, the director of forex strategy says. "The Trump-Xi call is positive for RMB sentiment as it shows that both Chinese and U.S. leaders are attempting to de-escalate tensions at the beginning of Trump's presidency," Cheung says. USD/CNH is 0.15% lower at 7.3247; USD/CNY is down 0.1% at 7.3152. (ronnie.harui@wsj.com)

0416 GMT - The Monetary Authority of Singapore will have no urgency to adjust its policy settings on Friday, says DBS Group Research. The Singapore dollar nominal effective exchange rate's decline from the top to the mid-point of its policy band doesn't signal an imminent policy shift, DBS says. The repositioning reflects the recent moderation in core inflation, which falls within the central bank's 2025 forecast of 1.5%-2.5% and the official 2025 forecast for the economy to slow to 1%-3% from 2024's 4% growth, DBS adds. Maintaining the Singapore dollar NEER's appreciation will help address cost of living issues, DBS says. The MAS's monetary policy is centered on Singapore's exchange rate.(amanda.lee@wsj.com)

0404 GMT - Taiwan's economy likely slowed on year in 4Q but DBS's economics team still expects growth to stay strong sequentially. It tips GDP growth at 2.0% on year in 4Q and at 4.5% on a quarterly seasonally adjusted annual basis, with scope for upside surprises. Exports growth remained steady in 4Q, driven by strong AI server demand and rush orders ahead of possible U.S. tariff hikes. Still, consumption growth seems to have weakened due to a cooling property market affected by the central bank's tightened monetary and credit policies, DBS adds. It stays confident in its 2025 GDP growth forecast of 3.0%, encouraged by recent positive earnings results and capex plans from chip maker TSMC.(fabiana.negrinochoa@wsj.com)

0355 GMT - As global markets move closer to inauguration day for Donald Trump, the U.S. economy remains resilient, BofA says in a note to clients. A strong payroll print was followed by another solid retail sales number, while core inflation is at 3.2% on year, still on the high side of the range, it adds. The picture doesn't justify continued rate reductions, since inflation is essentially stuck above target, the bank says. In contrast with market pricing, the Fed is done with cuts, BofA adds. (james.glynn@wsj.com; @JamesGlynnWSJ)

0351 GMT - The cyclical and structural dynamics displayed by the U.S. economy are consistent with a natural interest rate that is pretty close to the current Fed funds rate, but inflation is still stubbornly sticky above target, says Bank of America in a note to clients. That alone justifies the end of the Fed's easing cycle, it adds. There is significant uncertainty about the impact of Trumponomics 2.0 both in the U.S. and the rest of the world. When uncertainty increases, the option value of waiting increases accordingly, the bank says. Protectionist policies can have an impact on inflation expectations, but even more concerning is the likely impact of excessive fiscal stimulus for an economy running at potential. It might be too early to discuss hikes, but also too risky to validate cuts, BofA adds. (james.glynn@wsj.com; @JamesGlynnWSJ)

0345 GMT - The future of TikTok's operations is likely to have ripple effects on the much larger and more important U.S.-China tariff negotiations set to take place over the coming months, Wedbush analysts say in a research note. TikTok is "a chip on the poker table," the analysts add, noting that trade negotiations would "kick off onto the wrong foot right away" if Trump doesn't act to block the ban of the app. Trump announced on Sunday that he would sign an executive order to delay the ban and seek a joint venture to save the app after his inauguration. Wedbush believes ByteDance and Beijing are considering the possibility that Elon Musk could buy the U.S. TikTok operations. If ByteDance sold TikTok's U.S. operations, it would do so without the algorithm, with a price tag of about $40 billion to $50 billion, they say. (sherry.qin@wsj.com)

0323 GMT - Singapore's non-oil domestic exports growth could face risks this year from the rise of protectionist policies, CGS International economists write in a note. There have been some tariff-related announcements, including U.S. restrictions on imports of China-made solar wafers and polysilicon, and potential Canadian tariffs on U.S. imports, they say. Singapore's NODX performance could be resilient in 1H as businesses try to front-run Trump's potential tariffs. Singapore's electronics exports will also likely remain robust this year, driven by the global semiconductor market which may benefit from the artificial intelligence boom, they say.(amanda.lee@wsj.com)

0314 GMT - Bank of America has revised its forecast for an interest rate increase by the Bank of Japan, moving it to January from March. It now expects a hike of 25 bps to 0.50% at this Friday's policy meeting. A March hike had been the preferred forecast, allowing the BOJ more time to assess the new U.S. administration's policies, the bank said in a note to clients. However, strong price data and the likelihood that the BOJ's board will need to revise its inflation forecasts have prompted the change. Recent hawkish comments by senior BOJ officials, including Deputy Governor Himino and Governor Ueda, have also helped shape the change, it added. (james.glynn@wsj.com; @JamesGlynnWSJ)

0304 GMT - The Singapore dollar strengthens against its U.S. counterpart on likely position adjustments by market participants ahead of incoming U.S. President Trump's inauguration later today. Trump has promised to issue executive orders "hours" after he's sworn in, focusing on immigration, energy and government reforms, Maybank analysts say in an FX Research & Strategy report. "Any sign of a scale-back compared to the pledges he had made before in his campaigns could swing the USD lower given how much expectations (and fears) are being priced into the USD," the analysts add. USD/SGD is 0.3% lower at 1.3657. (ronnie.harui@wsj.com)

0301 GMT - Recent wage and inflation data back the case for a rate hike by the Bank of Japan this week, DBS's economics team says. Base wages in November neared the 3% threshold necessary to sustain 2% inflation, it says. CPI, core CPI, and core-core CPI all exceeded 2% in November and are expected to have kept rising. The BOJ's governor and a deputy governor have expressed confidence in the wage outlook after encouraging feedback, they add. Rising market hopes for a rate hike buoyed the yen, with USD/JPY falling from 158 to 155 over the past week. If BOJ disappoints with no rate hike, that could push USD/JPY back to 160, DBS says. BOJ is likely to try to avoid miscommunications that could cause turmoil in the yen. (fabiana.negrinochoa@wsj.com)

0301 GMT - Malaysia's GDP growth is projected to slow to 3.8% this year, down from an estimated 5.1% in 2024, as the country faces exposure to possible U.S. tariff hikes on China due to its supply-chain links, JPMorgan analysts say in a note. Since the first U.S.-China trade war, China's involvement in Malaysia's production has grown, primarily through transshipment activities, especially in the tech and machinery sectors, the analysts note. They expect the coming fuel-subsidy reforms, which could push retail RON95 petrol prices higher, to raise headline inflation to 3% this year. However, the impact on core inflation will likely be limited due to weak corporate pricing power, they say. The benign core inflation outlook could allow Malaysia's central bank to maintain its policy rate at 3.0% in 2025, they add. (yingxian.wong@wsj.com)

0251 GMT - Trump's policies might carry the risk of reigniting inflation concerns as economists fret about higher tariffs and tighter immigration policies, and yet economic growth expectations have been on the rise, says Tim Murray, Capital Markets Strategist, Multi-Asset Division at T. Rowe Price. This is because of expectations that there may be significant pent-up economic activity released now that election uncertainty has been removed, he adds. Additionally, many business owners, particularly owners of small businesses, have become more optimistic about future business conditions, Murray adds. So expect a much more cautious approach to rate cuts in 2025, with only one or two more cuts likely, he says. (james.glynn@wsj.com ; @JamesGlynnWSJ)