FOREX-US dollar strengthens against yen amid fresh tariffs threats; DeepSeek concerns fade

Updates headline, first paragraph and prices throughout, adds fresh analyst comment

By Chibuike Oguh and Greta Rosen Fondahn

NEW YORK/GDANSK, Jan 28 (Reuters) - The U.S. dollar strengthened against the yen on Tuesday amid fresh tariff threats from the Trump administration and as concerns over of the emergence of a low-cost Chinese artificial intelligence model faded.

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

Treasury Secretary Scott Bessent, who was confirmed by the U.S. Senate on Monday, has also been pushing for new universal tariffs on U.S. imports to start at 2.5% and rise gradually by the same amount each month, according to a Financial Times report.

The renewed focus on tariffs had traders reversing some of the risk-off moves made on Monday as Chinese startup DeepSeek's free open-source AI model challenged the widely held belief of the dominance of U.S. AI giants such as Nvidia NVDA.O and OpenAI.

The dollar strengthened 0.65% to 155.5 against the Japanese yen JPY=EBS, on course to snap three straight sessions of losses. Against the Swiss franc CHF=EBS, the dollar strengthened 0.24% to 0.904, on track to snap two consecutive days of declines.

"I think that there are two stories here that happened simultaneously and one is kind of wearing off," said Steve Englander, head of G10 FX research at Standard Chartered Bank in New York.

"The issues in the AI space were initially risk-off from an equity viewpoint. And that led the dollar to appreciate against basically all high beta currencies and the yen and Swiss did OK in that world because they're safe havens. Then came the Trump comments on tariffs, which affected currencies differently."

Trump's latest tariff threats 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.

Trump has also 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 euro EUR=EBS fell 0.51% at $1.0437. Sterling GBP=D3 weakened 0.44% to $1.2441, while the Canadian dollar CAD=D3 weakened 0.07% versus the greenback to C$1.44 per dollar. The Mexican peso < MXN=> strengthened 0.38% versus the dollar at 20.595, a day after recording its biggest daily loss since June last year.

The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro,

rose 0.05% to 107.85.

The Federal Reserve's two-day meeting begins on Tuesday where it is expected to keep interest rates steady. The European Central Bank will also meet this week, and is expected to cut interest rates.

The Bank of Japan will likely raise interest rates again around June or July, and seek to triple its policy rate to at least 1.5% in the next two years, former BOJ board member Makoto Sakurai said on Tuesday. The BOJ had raised short-term interest rates to 0.5% from 0.25% last week.

In cryptocurrencies, bitcoin BTC= gained 1.91% to $103,286.86. Ethereum ETH= rose 1.32% to $3,202.08.