By Kevin Buckland
TOKYO (Reuters) -The dollar jumped on Friday, reversing losses from the prior day after a media report that China was weighing tariff exemptions for some U.S. goods, stoking hopes for a de-escalation in a spiralling trade war between the world’s two largest economies.
The U.S. currency has been whipsawed this week by conflicting signs for a thaw in fraught relations between Washington and Beijing.
On Tuesday, President Donald Trump mooted a de-escalation of their tit-for-tat tariff battle, and said direct talks were already underway. Beijing later denied that discussions had started.
“Traders are definitely headline-chasing at the moment,” said Bart Wakabayashi, Tokyo branch manager at State Street.
“If there’s any sort of sign of an unwinding of these tariffs, there’s going to be an unwinding of positions that have been put in place because of them.”
On Friday, Bloomberg News reported that China is considering suspending 125% levies on U.S. medical equipment and some industrial chemicals.
The dollar climbed 0.7% to 143.665 yen as of 0435 GMT, and strengthened 0.6% to 0.8318 Swiss franc.
The euro sank 0.5% to $1.1327. Sterling declined 0.4% to $1.3287.
The U.S. dollar index, which measures the currency against those four rivals and two other major counterparts, gained 0.4% to 99.792.
Trump had rocked the dollar at the start of the week, sending it spiralling lower against major peers with his threats to fire Fed Chair Jerome Powell for not cutting interest rates quickly enough. It then jumped back on Tuesday when the president said he never had any intention of replacing the central bank boss.
Friday’s rally puts the dollar index on course for a 0.6% advance, which would snap a four-week losing run that was driven by fears of a tariffs-induced U.S. recession, and on investors’ loss of confidence in U.S. assets due to Trump’s policy flip-flops.
Washington has made some progress in early trade talks with Asian allies South Korea and Japan, however.
Seoul’s delegation said on Thursday following the first round of negotiations that the two sides are aiming to craft a trade package before the pause on reciprocal tariffs is lifted in July.
The Japanese Finance Minister said the same day after meeting U.S. Treasury Secretary Scott Bessent that there were no talks on currency targets. Trump had accused Tokyo earlier this month of weakening its currency to give its exporters an edge.
Japan’s chief negotiator, economy minister Ryosei Akazawa, will hold a second round of trade talks with Bessent next week.
“If the perception spreads that a reduction in tariffs is near, it could positively influence tariff negotiations with other countries, leading to a retreat from risk-off sentiment and a decrease in U.S. asset selling,” which could buoy the dollar back to 145 yen, Mizuho analysts wrote in a note.
“On the other hand, if negotiations look difficult even with Japan, a key ally, one can only imagine the situation with China.”
Bank of Japan Governor Kazuo Ueda on Thursday reiterated the central bank’s commitment to raising interest rates if underlying inflation evolves toward the 2% target as projected, but repeated that policymakers need to scrutinize the fallout from U.S. tariffs.
Core consumer prices in Japan’s capital rose 3.4% in April from a year earlier, data showed on Friday, accelerating for the second straight month.
The BOJ is widely expected to leave policy settings unchanged at its two-day meeting ending May 1.
Bitcoin was steady at around $93,200, as it continues to hover just below Wednesday’s high of $94,489.92, the strongest level since March 3.
(Reporting by Kevin Buckland; Editing by Saad Sayeed and Shri Navaratnam)
