A look at the day ahead in European and global markets from Tom Westbrook

A rate hike in Japan added momentum to a tide of dollar selling in the Asia session, as the first week of Donald Trump’s presidency has turned out to be less aggressive on the trade policy front than many in the markets had expected.

The dollar is down about 1.7% on the euro this week and a touch further on sterling. The dollar index is down 1.5%.

Tariffs are seen as positive for the dollar because the U.S. is a big importer and, in theory, if exporting countries can’t find alternative customers, they may weaken their currencies to offset the trade levy and preserve market share.

Tariffs do sound as though they are coming, but the rough conclusion from a few days of Trump’s second term seems to be that they will be subject to negotiation.

In a Fox News interview, Trump said he would rather not use tariffs against China and that a phone call with Chinese President Xi Jinping last week was friendly.

Trump had earlier told the World Economic Forum in Davos, via video link from Washington, that he wanted the U.S.-China trade relationship to be “fair”.

“We don’t have to make it phenomenal,” he said.

Hong Kong’s Hang Seng was up 1.8% through the morning session. China’s yuan hit a six-week high against the dollar.[.HK][CNY/]

The China-sensitive Australian dollar hit a five-week peak, and MSCI’s index of Asian emerging market currencies was heading for its largest one-week percentage gain in 18 months. [AUD/][EMRG/FRX]

The Bank of Japan lifted short-term interest rates to 0.5%, their highest in 17 years. Although the move was expected, traders pushed the yen about 0.6% higher to 155.12 per dollar.

The focus now moves over to a news conference by BOJ Governor Kazuo Ueda at 0630 GMT. British and European PMI figures are due later in the session, with services seen outpacing manufacturing.

Futures indicate a broadly steady open for Wall Street, putting the S&P 500 – which notched a record closing high on Thursday – on course for a weekly gain. [.N]

Key developments that could influence markets on Friday:

– British and European PMIs

(By Tom Westbrook; Editing by Edmund Klamann)