FOREX-Currency market whiplashed on tariff, DeepSeek concerns

Updates to Asia afternoon

By Brigid Riley

TOKYO, Jan 28 (Reuters) - The dollar firmed against the yen and euro on Tuesday on new U.S. tariff threats, giving traders little time to catch their breath after Monday's big risk-off moves on concerns that U.S. dominance in artificial intelligence technology may be wavering.

Any market relief that President Donald Trump stopped short of hiking tariffs on U.S. trading partners immediately after taking office last week has quickly faded.

Trump said he planned to impose tariffs on imported computer chips, pharmaceuticals and steel in an effort to get the producers to make them in the United States.

That verbal salvo came a day after the U.S. and Colombia pulled back from the brink of a trade war when the White House said the South American nation had agreed to accept military aircraft carrying deported migrants.

"We've seen a lot of whiplash in the dollar movement as a result of...back and forth headlines on the tariffs and whether it's aggressive or not," said Sim Moh Siong, a currency strategist at Bank of Singapore.

"It's difficult to say for sure what is the trend going to be for the next 24 hours because, as we have experienced over the last few days, a lot of it is driven by what comes out of headlines."

The euro EUR=EBS fetched $1.0435 EUR=, down 0.54% as tariff risks loomed.

Trump has flagged possible 25% duties on imports from Canada and Mexico on Feb. 1, and has threatened to hit the EU and China with tariffs as well.

The dollar index =USD, which measures the U.S. currency against six rivals, rose 0.08% to 107.89, after dropping to its lowest level since mid-December at 107.68 the previous day.

"Tariffs will remain front and centre for the time being, ...especially as we close in on the February 1st deadline," said Kieran Williams, head of Asia FX at InTouch Capital Markets.

Market players will be analysing whether or not newly confirmed U.S. Treasury Secretary Scott Bessent favours a gradual approach to tariffs, he added.

RISK-OFF MOVES REVERSED

The focus on tariffs had traders reversing some of the large risk-off moves made on Monday as Chinese startup DeepSeek's free open-source AI model raised questions about the sky-high valuation and dominance of U.S. AI bellwethers like Nvidia.

The yield on benchmark 10-year Treasury notes US10YT=RR bounced back in Asia time after dropping to a one-month low of 4.561% the previous day.

The yen slid back within its recent trading range against the greenback, after safe-haven bids sent the Japanese currency to its highest level since mid-December at 153.715 on Monday.

Against the yen, the dollar traded up 0.84% at 155.79 yen JPY=EBS.

The Federal Reserve's two-day meeting begins on Tuesday where it is expected to keep interest rates steady. Investors will look for any hints on whether a rate cut could happen soon if inflation eases closer to the U.S. central bank’s 2% annual target.

For the Fed, the focus will be on Trump's early moves on broader policy that are likely to shape the economy this year.

Fed officials have already nodded to potential effects from Trump's trade, immigration and other policies, with staff at the December meeting pencilling in assumptions for slightly slower growth, higher unemployment and little further progress on inflation for the coming year.

The European Central Bank will also meet this week, and is expected to cut interest rates.

Sterling GBP=D3 last traded at $1.2447, down 0.43% on the day.

The risk-sensitive Australian AUD=D3 and New Zealand dollars NZD=D3 extended their losses.

Bitcoin BTC=, the world's best-known cryptocurrency, was up 1.72% at $103,091.61.