The U.S. dollar slumped to an eight-week trough to the yen and lingered near a one-month low versus sterling on Thursday, as investor nerves about an inflation-stoking global trade war abated.
Japan's currency was also supported by rising expectations for further Bank of Japan interest-rate hikes with a central bank official advocating continued rate hikes, a day after strong wage data.
Sterling was firm even with the Bank of England widely expected to cut rates by a quarter point later in the day.
The dollar sank 0.5% to 151.81 yen by 0140 GMT, the lowest since December 12, adding to a 1.1% slide on Wednesday.
Sterling was steady at $1.2509, after rising as high as $1.2550 in the previous session for the first time since January 7.
The euro was flat at $1.0401 after edging up 0.2% on Wednesday.
The dollar index – which measures the U.S. currency against the euro, sterling, yen and three other major peers – stood at 107.57, not far from its overnight low of 107.29.
The index had jumped to a three-week high of 109.88 at the start of the week as Trump looked poised to impose 25% import tariffs on Mexico and Canada, but the countries won last-minute, one-month reprieves – although Washington did slap 10% tariffs on China.
The offshore yuan strengthened slightly to 7.2775 per dollar.
Canada's loonie was steady at C$1.4321 versus its U.S. counterpart after rising to the highest since December 17 at C$1.4270 overnight. The Mexican peso was steady at 20.5789 per dollar.
"It appears that the market has started to put the tariff threats against Mexico and Canada in the rear view mirror and is treating the China tariffs as business as usual," said James Kniveton, a senior corporate FX dealer at Convera.
"Two (U.S.) rate cuts are still anticipated by the end of the year, but with the diminishing likelihood of tariffs contributing to inflation, there appears to be greater flexibility for the Federal Reserve."
The next major test for the U.S. monetary policy outlook is monthly payrolls figures due Friday.
A quarter-point Fed cut is fully priced for July, with markets expecting 46.3 percentage points of cuts by the December meeting, according to LSEG data.
Meanwhile, market-implied odds for an imminent BoE rate reduction stand at 92%. For the BOJ, the market has priced in around 94.8% odds for a quarter-point hike by September.
BOJ board member Naoki Tamura said on Thursday that the central bank must raise rates to at least 1% or so in the later half of fiscal 2025 with upward risks to prices rising.
A day earlier, data showed a second-straight month of growth for real wages.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!