06:16 AM EST, 01/27/2025 (MT Newswires) -- The US dollar sell-off at the end of last week was reinforced by comments from United States President Donald Trump that he would prefer not to have to hike tariffs on goods imported from China, which added to investor optimism that a 10% tariff hike won't be implemented on Feb. 1 as threatened, said Mitsubishi UFG.

The comments helped lower USD/CNY to a low of 7.2376 on Friday although it has since risen back up to a high overnight Sunday of 7.2675, wrote the bank in a note to clients. The partial reversal of renminbi has been encouraged in part by the release of weaker-than-expected PMI surveys from China over the weekend.

The official PMI surveys for January signaled that China's economy unexpectedly lost growth momentum ahead of the Lunar New Year holiday, stated MUFG. January business confidence surveys revealed that manufacturing weakened more than the typical seasonal dip during an LNY month.

The manufacturing PMI fell by 1.0 point to 49.1 in January and hit the lowest level since August. At the same time, the services PMI fell even more sharply by 2.0 points to 50.2 bucking the normal seasonal tendency for a pick-up as the service sector benefits from holiday-related demand.

The softer business confidence surveys signal that China's economy has made a weaker-than-expected start to the new calendar year and will increase calls for domestic policymakers to step up fiscal and monetary policy support for growth in the coming months, pointed out the bank. The need for additional stimulus will intensify if President Trump follows through with threats to hike tariffs on China.

MUFG expects additional stimulus to be implemented after the new year holiday break between Tuesday and Feb. 4. The combination of weak growth momentum in China, the prospect of further central bank (PBoC) rate cuts and the threat of higher tariffs on goods imported from China continues to support the bank's outlook for the renminbi to weaken this year, and for USD/CNY to move back up towards MUFG's forecast of 7.5000.

The threat of tariffs during Trump's second term as president has been in focus over the weekend, added the bank. President Trump promised to impose tariffs and sanctions on Colombia for refusing to allow military planes carrying undocumented people to land. In a Truth Social post he threatened to implement an emergency 25% tariff on all imports of goods from Colombia, which would have been raised up to 50% in a week as well as travel curbs and unspecified sanctions.

The threat proved successful in forcing Colombian President Gustavo Petro to agree to all of Trump's terms and may encourage the U.S. president to use similar tactics on other countries to bend them to his will, according to MUFG.

Colombia has historically been one of Washington's biggest diplomatic allies in Latin America and a major recipient of U.S. aid and military assistance. Emerging market currencies such as the Mexican peso and South African rand have opened up weaker at the start of this week in response, noted the bank.