Dollar hits year-to-date lows as bulls get nervous

SINGAPORE – The yen shot to a 2-1/2 month high on Friday on the back of a jump in Japanese inflation, while the dollar was set for a third weekly drop in a row as traders calculated the start of Donald Trump’s second term has been mostly bluster on the tariff front.

The yen broke through chart resistance at 150 per dollar overnight and it strengthened as far as 149.285 per dollar in the Asia morning after Japan recorded core inflation running at its fastest pace for 19 months in January.

The euro was up 0.8% overnight and was steady in Asia at USD 1.0498 with traders awaiting an election in Germany on the weekend where polls point to a conservative coalition win.

The dollar nursed broad losses as bulls who had built up big long positions in anticipation of a trade war have backed off while Trump equivocates about tariffs.

Trump has slapped an additional 10% tariff on Chinese goods and announced plans to reimpose steel and aluminum levies from his first term, but suspended threatened tariffs on Canada and Mexico while numerous others remain – as of yet – only threats.

“It was a very one-sided trade and very heavy long positioning,” said Jason Wong, strategist at BNZ in Wellington.

“Some of those longs are becoming impatient because the only thing he has done is put (a) 10% (tariff) on China – so the market is taking some of that money off the table.”

Wong said evidence that Japan’s inflation was tipping higher – the core consumer price index rose to an annual 3.2% against expectations for 3.1% – also bolstered the case for higher Japanese rates at a time when the rest of the world might be cutting, and so a higher yen.

The yen is up 3.6% on the dollar through February so far. Japanese bonds were sold off on Friday and interest rate markets have priced in a 25 basis point rate hike in Japan by September.

A remark from Trump that a trade deal with China was possible lifted the trade-sensitive Australian and New Zealand dollars.

Comments from his Treasury secretary, Scott Bessent, that the administration had no plans to increase long-dated debt sales put downward pressure on yields and the dollar.

The dollar index on Thursday touched its lowest for 2025 at 106.29 and was last at 106.45.

The Aussie and kiwi are trading at their highest levels this year despite rate cuts on both sides of the Tasman this week, and New Zealand’s central bank flagging more to come.

Australia is in a position where there could be some more decreases in interest rates but policymakers have to be cautious, the country’s top central banker said on Friday.

The kiwi touched USD 0.5772 on Friday morning, while the Aussie has broken above 64 cents for the first time this year and touched USD 0.6404.

Trump said Chinese President Xi Jinping would visit the US, without giving a timeline, which sent up the yuan to a one-month high in onshore trade on Thursday.

In offshore trade, it was steady at 7.2419 per dollar on Friday.

Sterling touched its highest since mid-December at USD 1.2674.

Later on Friday purchasing managers’ index indicators are released worldwide.

(Reporting by Tom Westbrook; Editing by Jamie Freed)