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The yen reached its strongest level in over two months on Thursday, driven by growing expectations of additional rate hikes from the Bank of Japan (BOJ) this year. Meanwhile, concerns over new tariff threats from U.S. President Donald Trump kept global markets on edge.

The yuan also gained some support after Trump suggested that a new trade deal between the U.S. and China was possible and mentioned that Chinese President Xi Jinping could visit the U.S., though no timeline was given for the trip. The yen strengthened more than 0.8%, hitting a high of 150.15 per dollar, extending its gains from the previous day.

BOJ Governor Kazuo Ueda confirmed that he met with Japanese Prime Minister Shigeru Ishiba for their regular economic discussions, but they did not touch on the recent rise in long-term interest rates.

Bank of Singapore currency strategist Moh Siong Sim noted that the yen's surge could be due to the market interpreting Ueda's comments as a signal that the recent increase in yields, which had supported the yen, was not a concern. This sparked speculation that the BOJ could soon tighten policy, leading to further yen strength.

Investors have been gradually increasing bets that the BOJ might raise rates sooner than expected, particularly as recent domestic data strengthens the case for further tightening.

In China, the onshore yuan rose 0.2% to 7.2682 per dollar, and the offshore yuan gained 0.2% to 7.2686, boosted by Trump's remarks about a potential trade deal. His comments helped ease concerns over escalating tensions between the U.S. and China, which had previously pressured the yuan.

The U.S. dollar faced downward pressure on Thursday, trading sideways in recent sessions due to the lack of concrete actions from Trump regarding his tariff threats. Investor caution limited the greenback's losses.

Geopolitical issues also played a role, with Trump referring to Ukrainian President Volodymyr Zelenskiy as a "dictator" amid discussions to end the Russia-Ukraine conflict.

The British pound remained near a two-month high, edging up 0.09% to $1.2597. The euro gained 0.06% to $1.0428, recovering slightly after a decline due to conflicting views among European Central Bank officials on inflation risks and economic growth.

Against a basket of currencies, the U.S. dollar fell 0.16% to 107.01.

Trump announced on Wednesday that he plans to impose tariffs within the next month, adding lumber and forest products to the list of imports, which already included cars, semiconductors, and pharmaceuticals.

Carol Kong, a currency strategist at Commonwealth Bank of Australia, commented that while Trump's tariff announcements initially had a big impact on financial markets, they’ve since adjusted to his style, noting that he often uses tariffs as a negotiating tactic, and his statements may not always translate into actual policy.

In other currency moves, the Australian dollar rose 0.28% to $0.6363 after a mixed jobs report showed that employment exceeded forecasts for a second consecutive month, although the unemployment rate still ticked up. The New Zealand dollar gained 0.26% to $0.5720. Reserve Bank of New Zealand Governor Adrian Orr stated that a significant economic shock would be needed for the central bank to cut interest rates by 50 basis points, as it did at its recent meeting.

Paraphrasing text from "Investing.com"all rights reserved by the original author