TOKYO/GDANSK, Jan 28 (Reuters) - The dollar firmed against major currencies on Tuesday on new U.S. tariff threats, giving traders little time to catch their breath after Monday's big risk-off moves sparked by the emergence of a low-cost Chinese artificial intelligence model.
Any market relief that President Donald Trump had stopped short of hiking tariffs on U.S. trading partners immediately after taking office last week has quickly faded.
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.
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.
The Financial Times reported on Monday that Trump's pick for Treasury secretary, Scott Bessent, has been pushing for universal tariffs on U.S. imports, which would start at 2.5% and rise each month.
"These comments contradict the markets' tentatively sanguine assumption that tariffs would be more of a case-by-case measure... and not universal," said Francesco Pesole, foreign exchange strategist at ING.
Expectations that tariffs will push up inflation prompted a scaling back of U.S. rate cut bets in the lead-up to the inauguration, which in turn boosted the dollar.
The euro fell 0.7% to $1.04155.
Sterling last traded at $1.2425, down 0.6% on the day, while the Canadian dollar eased 0.27% to 1.4412 per U.S. dollar.
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 , which measures the U.S. currency against six rivals, recovered 0.2% to 108, after dropping to its lowest level since mid-December at 106.96 the previous day.
"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.
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.
"Even if the dollar is not the preferred haven in those equity selloffs, tariffs are a bigger and longer-term concern for the broader FX sphere," said ING's Pesole.
The yen slid back, after safe-haven bids sent the Japanese currency to its highest level since mid-December at 153.715 per dollar on Monday.
Against the yen, the dollar traded up 0.6% at 155.38 yen .
The dollar also rose 0.47% against the Swiss franc to 0.9061, recovering from a five-week low against the currency on Monday.
The yield on benchmark 10-year Treasury notes bounced back after it dropped to a one-month low in the previous session.
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 Fed's 2% annual target.
Money markets currently expect the Fed to cut rates by around 48 basis points this year but don't price in a cut until June.
Fed officials have already nodded to potential effects from Trump's trade, immigration and other policies, with staff at the December meeting forecasting 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.
Reporting by Brigid Riley in Tokyo and Greta Rosen Fondahn in Gdansk; Editing by Shri Navaratnam, Jamie Freed, Christina Fincher and Gareth Jones
