The US dollar fell against the Japanese yen on Thursday afternoon after President Donald Trump said he would impose an additional 10% tariff on $300 billion worth of Chinese imports on Sept. 1.
Trump made the announcement in a series of tweets after an American delegation returned from trade talks in Beijing, saying China had failed to deliver on its promises to buy large quantities of agricultural products from the United States, and to curb sales of the synthetic opioid fentanyl.
The dollar was 1.32% weaker at 107.31 yen after hitting a two-month high overnight. The safe-haven yen rose as traders moved out of riskier assets. The dollar index turned negative after Trump's remarks, last down 0.20% to 98.325.
In the prior session the index had hit a two-year high following guidance from Federal Reserve chair Jerome Powell that the 25-basis-point interest rate cut on Wednesday, the central bank's first since the financial crisis, was not the beginning of a broader loosening in monetary policy.
"There have been fairly substantial moves in the rates market, so foreign exchange is not going to be immune to that. But by comparison, outside of dollar/yen, the moves have been a little bit more measured, but certainly still exhibiting some sympathy," said Mazen Issa, senior foreign exchange strategist, TD Securities, New York.
The benchmark 10-year US Treasury yield dropped below the technically significant level of 2% for the first time in more than two years to 1.878%, its lowest since November 2016.
The dollar's reversal returned the euro to positive territory after it had slumped to a 26-month low on the dollar's post-Fed climb. Investors expect the European Central Bank to take a more aggressive stance on monetary policy easing than the Fed, which would dampen appetite for the common currency. It was last up 0.13% to $1.1088.
The pound, battered by the increasing likelihood that Britain will exit the European Union without a deal, returned from a 30-month low, but had not turned positive in mid-afternoon trade. It was last 0.06% lower on the day to $1.2150.
On Wednesday, Trump expressed disappointment that the Fed had not made a bigger cut to interest rates. The president, who has launched a 2020 re-election campaign highlighting his stewardship of the economy, has repeatedly called for easier monetary policy.
"One thing that's interesting is that after the Fed decision yesterday Trump tweeted in fairly short order his disapproval of it, and so he went outside of the lines to start a trade war," said Issa.