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In Singapore and London on February 5th, the yuan weakened due to renewed U.S.-China trade tensions following the Lunar New Year break, while the yen surged against the dollar amid expectations of rate hikes by the Bank of Japan this year.

By the end of onshore trading, the dollar had risen 0.47% against the yuan to 7.272. The People's Bank of China's stronger-than-expected midpoint rate limited the dollar's gains, determining the band within which the currency can fluctuate.

Investors monitored whether Beijing would permit the yuan to depreciate to offset the impact of U.S. tariffs enforced by President Donald Trump. China swiftly retaliated with tariffs on U.S. imports, prompting Trump to express willingness to talk to President Xi Jinping to ease tensions.

Alvin Tan, head of Asia FX strategy at RBC Capital Markets, commented that China's response has been relatively mild, speculating that the U.S. might defer tariffs similar to those on Mexico and Canada after Trump's conversation with Xi.

The offshore yuan slightly strengthened to 7.276 per dollar, rebounding from a record low of 7.3765 earlier in the week. Under Trump's presidency, the yuan depreciated by over 12% against the dollar to enhance the competitiveness of Chinese products.

Currency volatility reduced after a tumultuous beginning of the week driven by imminent 25% tariffs on Mexico and Canada, which were ultimately avoided following border security talks.

The dollar index declined by 0.39% to 107.63, chiefly due to yen strength that had pushed it to 109.88 on Monday. The euro and pound each advanced by approximately 0.22%.

Strong Japanese wage data and hints of additional rate hikes propelled the yen, causing the dollar to dip to a six-week low at 152.92 yen per dollar. December data indicated a 0.6% increase in Japan's inflation-adjusted real wages, suggesting growing momentum for wage hikes.

Foreseeing further BOJ rate increases in 2020, traders priced in over 30 basis points by year-end, spurred by positive wage indicators.

Derek Halpenny, senior foreign exchange strategist at MUFG, attributed recent yen strength to robust wage figures, implying potential for two more BoJ rate hikes this year that are not yet factored into the market.

The U.S. dollar weakened against the Canadian dollar from its 22-year low on Monday. Against the Mexican peso, the dollar strengthened but remained below the peak of 21.28 seen earlier in the week.

Carol Kong, a currency strategist at Commonwealth Bank of Australia, noted the surprising market resilience amid tariff tensions and the resumption of the U.S.-China trade conflict, highlighting positive risk sentiment.