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The Mexican peso sank to three-month lows against the dollar on Friday after Washington unexpectedly said it will slap tariffs on all goods coming from its southern neighbor.

The safe-haven yen advanced as the Trump administration’s move to escalate its trade war with other countries shook already fragile investor sentiment in global financial markets.

“The news on Mexican tariffs came just as the United States is imposing tariffs on China, and the timing is stirring up the markets, ” said Daisuke Karakama, chief market economist at Mizuho Bank.

“Headlines related to trade issues come in short, unpredictable bursts. Currency market reaction is therefore quite intense, but also tends to be short-lived.”

The Mexican peso was down 1.8% at 19.4812 per dollar after President Donald Trump said on Thursday the United States will impose a 5% tariff on all goods coming from Mexico from June 10 until illegal immigration is stopped.

At one point, the peso weakened to 19.5950 per dollar, its lowest since March 8.

“Imposing these tariffs is in principle, not allowed under the free trade agreement currently in place between Mexico and the United States or under WTO general frameworks,” wrote Tania Escobedo, strategist at RBC Capital Markets.

“It is likely, however, that Trump will claim the measure is a matter of national security, referring to the International Emergency Economic Powers Act (IEEPA).”

The yen was up 0.35% at 109.240 per dollar and also made gains against the euro and Australian dollar.

The dollar index against a basket of six major currencies was flat at 98.106 after inching down the previous day, when it snapped two straight sessions of gains amid a continuing decline in U.S. yields.

The index was still headed for a 0.5% gain this week, supported by weakness in peers such as the euro and sterling, and the U.S. currency’s own status as a safe-haven in times of market and economic troubles.

“The dollar’s recent gains are part of the flight-to-quality into the United States, notably the strong investor demand for Treasuries which has driven their yields lower,” said Takuya Kanda, general manager at Gaitame.Com Research Institute.

The 10-year U.S. Treasury note yield has declined steadily this week and touched 2.171% on Friday, its lowest since September 2017.

The euro was steady at $1.1133. The single currency was down 0.62% this week, weighed by factors including concerns over Italy’s rising debt and the prospect of Trump opening up a European front in his trade war.

The pound was effectively flat at $1.2612. Sterling has lost nearly 0.8% this week, as the imminent departure of Theresa May as prime minister deepened fears about a chaotic exit for Britain from the European Union.

The Swiss franc, which serves as refuge in times of market turmoil, rose 0.2% to 1.0058 francs per dollar.

The Japanese yen firmed to a two-week high versus the dollar on Wednesday as concerns of a further escalation in the trade conflict between the United States and China prompted investors to rush to perceived safe-haven assets.

A global wave of risk aversion sent sovereign bond yields tumbling across the world. Benchmark U.S. Treasury yields fell to their lowest levels since September 2017 while New Zealand bond yields tumbled to a record low.

The People’s Daily newspaper, owned by China’s ruling Communist Party, said Beijing was ready to use rare earths for leverage in its trade war with the United States. It added in an extremely strongly worded commentary “don’t say we didn’t warn you”.

The yen edged 0.2 percent higher to 109.15 against the dollar, its highest level since May 15 this year and not far away from an early February high of 109.02 yen.

But the dollar’s losses remain broadly confined against the yen as the greenback remained firm against other currencies such as the euro and the pound.

The dollar – bolstered by its status as the world’s reserve currency – was less than half a percent below a two-year high of 98.37 hit last week against a basket of its rivals. It was broadly steady at 97.97.

“Investors currently regard the greenback as the go-to instrument in a time when global growth is threatening to turn lower on the back of a trade dispute and political fragmentation abroad,” said Konstantinos Anthis, head of research at ADSS.

The U.S. Treasury Department said in a report on Tuesday it reviewed the policies of an expanded set of 21 major U.S. trading partners and found that nine required close attention due to currency practices: China, Germany, Ireland, Italy, Japan, South Korea, Malaysia, Singapore, and Vietnam.

Shusuke Yamada, currency and equity strategist at Bank of America Merrill Lynch, said the report had a muted impact on risk sentiment, adding that investors are watching how the United States and China will deal with their trade dispute going into the G-20 meeting in Japan next month.

The dollar rose against its major peers on Tuesday as investors awaited new trading catalysts after the European Union parliamentary elections showed a polarization of the 28-member block.

The yen was in a holding pattern as U.S. President Donald Trump, who is visiting Japan, is seen putting pressure on Tokyo to reduce the nation’s large trade surplus with the United States.

Many of the currency pairs hugged recent ranges, as activity thinned out overnight with stock exchanges in the United States and Britain closed for market holidays.

The euro struggled following remarks by two officials from the currency bloc that the European Commission is likely to  start disciplinary steps against Italy on June 5 over the country’s rising debt and structural deficit levels, which break European Union rules.

Against a basket of six peers, the dollar index gained 0.2% to 97.804, trading about 0.6% off a two-year high of 98.371 hit on Thursday. The index is still up 1.7% for the year.

The euro slipped 0.1% to $1.1182 after bouncing from a 1-1/2-week high of $1.1215 overnight following the outcome of European parliamentary elections.

Pro-European parties retained a firm grip on the EU parliament, provisional results from the bloc’s elections showed on Monday, though eurosceptic opponents saw strong gains.

“There is a polarization of the European parliament which is a kind of representation of the overall European political situation,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities. “That will be broadly negative for the euro.”

Yamamoto said the news of possible disciplinary steps against Italy over its national debt hurt the euro, though the market reaction was limited due to the U.S. and UK holidays.

Against the yen, the greenback dipped 0.1% to 109.46 yen, 0.4% above a three-month low of 109.02 yen touched three weeks ago.

The dollar’s rise against the Japanese currency has been limited as Trumpsought to pressure Japan to take measures to reduce its trade surplus with the world’s largest economy.

Trump said on Monday he expected the two countries to be “announcing some things, probably in August, that will be very good for both countries” on trade.

Japan’s Economy Minister Toshimitsu Motegi said on Tuesday the U.S. President’s comment probably reflected his hope for quick progress in negotiations.

“While it’s positive that there will be time for solving the U.S.-Japan trade issue, that doesn’t mean the problem has been has been resolved,” said Kumiko Ishikawa, senior analyst at Sony Financial Holdings. ”(But) it’s providing some relief.”

Ishikawa said it remained hard for investors to take on risk due to the yet-to-be-resolved trade negotiations between the United States and China.

Elsewhere in the foreign exchange market, the Australian dollar edged up to $0.6919, about 0.75% above a four-month low last touched on Thursday last week.

Bitcoin, which on Monday had touched $8,939.18, its highest level in more than a year, was last up 0.15% at $8,783.11. The cryptocurrency topped $8,000 for the first time since July 2018 on May 13.

The euro held firm in early Monday trade after pro-European Union parties withstood more fragmentation than before to hold on to two-thirds of seats in the EU parliament elections, limiting gains in nationalist opponents.

The common currency traded at $1.1211 in Asian trade, near its highest levels in 1 1/2 weeks, and off a two-year low of $1.11055 touched on Thursday.

While center-right and center-left blocs are losing their shared majority, surges in the Greens and liberals meant parties committed to strengthening the union held on to two-thirds of seats, official projections showed.

The results dented the hopes of anti-immigration, anti-Brussels National Rally led by Marine Le Pen, Italian Deputy Prime Minister Matteo Salvini and others who have been opposing attempts to forge closer EU integration.

“It looks like pro-EU parties still have a majority. To be sure, we see a rise of anti-EU parties in some countries but it is not like they are winning an outright majority,” said Minori Uchida, chief currency analyst at MUFG Bank.

“I’d expect markets’ focus to shift back to U.S.-China relations,” he said.

Trading was seen subdued on Monday due to market holidays in London and New York, limiting moves in other currency pairs.

The U.S. currency traded at 109.45 yen, up 0.15%, underpinned by Japanese players’ bargain-hunting.

Buying interest from Japanese investors is strong when the dollar dips near 109 yen, said Mitsuo Imaizumi, chief currency strategist at Daiwa Securities.

“Data shows Japanese investors bought a large amount of foreign bonds a few weeks ago when the dollar fell near 109 yen. There’s demand from Japanese companies that need dollar for their M&A deals,” he said.

Still, the U.S. currency is not far from a three-month low of 109.02 touched two weeks ago, hit amid worries about escalating tensions between Washington and Beijing over trade and technology.

The dollar has been also capped against the yen as U.S. President Donald Trump is seen putting pressure on Japan to take measures to reduce its trade surplus with the United States.

Trump, who arrived in Tokyo on Saturday, tweeted on Sunday that much of the trade negotiation with Japan will wait until after the country’s election in July.

The British pound ticked up 0.15% to $1.2731, having regained some ground after Prime Minister Theresa May set out a departure date, bouncing back from a 4-1/2-month low of $1.2605 set on Thursday.

But the prospect of a “no deal” Brexit was fast becoming the central battle of the race among contenders to succeed May, with four of eight leadership hopefuls having said Britain must leave the EU on Oct. 31 even if this means a no-deal Brexit.

The dollar held steady on Friday, having come off two-year highs on lower U.S.yields in the previous session amid fears that a trade war with China will hurt the U.S. economy more than previously thought.

The greenback was not helped by rising expectations for an interest rate cut by the U.S. Federal Reserve later this year to help boost the world’s biggest economy.

Against a basket of key rival currencies, the dollar index was largely unchanged at 97.906, having fallen from a two-year high of 98.371 overnight. The index is still up 1.8% for the year.

“Global risk aversion stemming from the intensifying U.S.-China trade tension is causing the stronger yen,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

“Markets are pricing in the potential negative impact on the U.S. economy and the U.S. equity markets,” he said, referring to U.S.-China trade tensions.

On Thursday, U.S. President Donald Trump said U.S. complaints against Huawei Technologies might be resolved within the framework of a U.S.-China trade deal, while at the same time calling the Chinese telecommunications giant “very dangerous.”

The benchmark 10-year U.S. Treasury note yield was last up slightly at 2.3309%.

Overnight, it fell to its lowest since October 2017 after an early read on U.S. manufacturing activity for May posted its weakest pace of growth in almost a decade, suggesting a sharp slowdown in economic growth was underway.

There was only a 38.2% expectation on Thursday that U.S. interest rates will be at current levels in October of this year, compared to 58.3% a month ago, according to the CME Group’s FedWatch tool.

Against the yen, the dollar edged up to 109.695 yen, having giving up two-thirds of a percent overnight to record its steepest drop in a single session in two months.

The greenback is still 0.6% above a three-month trough of 109.02 yen touched on May 13.

The Australian dollar held steady at $0.6904, putting it on track to finish the week with a 0.5% gain, its first positive weekly performance in six weeks.

Elsewhere in the foreign exchange market, the euro was flat at $1.1183, having bounced from a two-year low of $1.11055 during the previous session.

The single currency came under pressure after a private survey showed activity in Germany’s services and manufacturing sectors fell in May, aggravating fears about the effect of unresolved trade disputes on Europe’s largest economy.

Compounding these worries, European parliamentary elections began on Thursday with eurosceptic parties expected to do well, raising concerns about the single currency’s stability.

The dollar hovered near a four-week high on Wednesday, supported by higher U.S. yields after the United States eased trade restrictions on Chinese telecommunications equipment maker Huawei Technologies.

The move came as a relief to markets hit by escalating trade tensions between the United States and China, though analysts said sentiment remained fragile with tariff negotiations between the world’s two largest economies yet to produce a durable solution.

“The trade dispute won’t be resolved easily, so the risk-off mood won’t come off all of a sudden. I think market sentiment will rather improve one small step at a time,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

Against a basket of key rival currencies, the dollar was last a shade lower at 98.014, having brushed a 3-1/2-week high of 98.134 overnight. The index has risen 1.9% so far this year.

The U.S. Commerce Department blocked Huawei Technologies from buying U.S. goods last week, leading several companies to suspend business with the world’s largest telecoms equipment maker.

Chipmakers, many of which sell to Huawei, bore the brunt of the sell-off.

But late on Monday, the United States granted Huawei a licence to buy U.S. goods until Aug. 19.

Against the yen, the dollar was largely steady at 110.49 yen, having hit a two-week high of 110.675 during the previous session. The greenback has recovered 1.4% from a three-month trough of 109.02 yen touched on Monday last week.

Japan’s exports fell 2.4% in April from a year earlier, down for a fifth straight month, in a sign of weakness in external demand, finance ministry data showed, compared with a 1.8% decrease expected by economists in a Reuters poll.

Sumitomo Mitsui’s Sera said the yen’s weakness overnight was thanks to the higher U.S. Treasury yields, which ticked up in response to the recovery in U.S. equities.

“When yields are rising, it’s natural for the dollar to be bought. I think moves in U.S. yields are really important,” she said.

The 10-year U.S. Treasury note yield was last largely unchanged at 2.423% after moving further off a seven-week low of 2.354% brushed on Thursday during the previous session.

The euro was steady at $1.1162.

The single currency, which has given up 0.9% from this month’s high touched on May 1, has been under pressure in recent weeks on dollar strength and due to concerns the upcoming European parliamentary elections may see euroskeptic parties faring well.

The pound was at $1.2713, hovering near a four-month low of $1.2685 touched overnight. It briefly rose overnight after Prime Minister Theresa Mayset out a “new deal” for Britain’s departure from the EU, offering sweeteners to Parliament including the chance to vote on whether to hold a second referendum to try to break the impasse over Brexit.

Yet traders doubted that a fractious Parliament would have to back any new referendum.

The Australian dollar rallied against the greenback on Monday after a surprise election victory by the country’s conservative government, while the yen eased as risk appetite improved slightly.

The dollar index against a basket of currencies was a shade higher at 98.024, having booked its biggest weekly rise since early March last week.

The Aussie was last up 0.7% at $0.6916, having bounced from a four-month trough of $0.6865. It was briefly quoted as high as $0.6990 but dealers said that was a miss-hit and the actual transacted peak was $0.6938.

The currency’s jump came after Australian Prime Minister Scott Morrison’s center-right Liberal National Coalition scored a shock win in federal elections, beating the center-left Labor party, who had been tipped to win.

The election result helped provide stability to the country’s economic outlook, analysts said, as some had feared a win for the less business-friendly center-left Labor party could have undermined growth.

“There’s a sense of security with the continuation of the current government,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

“The risk that the economy will experience a big drop has decreased considerably as a result.”

The Aussie also found support on a statement from China’s central bank on Sunday that it would maintain the stability of its yuan within a reasonable and balanced range.

The yuan has taken a hit recently in the wake of intensifying trade tensions between the United States and China.

Another factor in play was a surge in crude prices after the Organization of the Petroleum Exporting Countries indicated it will likely maintain production cuts, helping spur demand for currencies sensitive to oil prices.

The Canadian dollar advanced about a quarter of a percent to C$1.3430.

Against the yen, the dollar added 0.1% to 110.215, building on last week’s gains, when it booked its first weekly advance against the Japanese currency in five weeks.

The yen dipped on a slight improvement in risk appetite, with data showing the Japanese economy unexpectedly accelerated in the last quarter, defying expectations for a mild contraction.

The world’s third-biggest economy grew at an annualized rate of 2.1%, government data showed, accelerating slightly from the previous quarter thanks to net export gains.

The euro was steady at $1.1155, having dropped last week on comments from Italian Deputy Prime Minister Matteo Salvini that European Union rules harm his country.

Investors’ focus this week is on the May 23-26 elections for the new European Parliament.

Market participants will also watch out European readings for a private purchasing managers’ index that measures activity in services and manufacturing due on Thursday, after data last week showed the German economy returned to growth in the first quarter of 2019.

“If we see good PMIs, the euro will form a bottom. It could be the start of the recovery,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

The Japanese yen strengthened on Friday, attracting safe-haven buying due to lingering concerns among investors about trade tensions and impending European Parliament elections.

Currency moves in response to recent U.S.-Chinese trade hostilities have been fairly muted but traders have bid up the yen, considered a safe haven in times of stress because of Japan’s status as the world’s largest creditor.

“Despite yesterday’s rebound, we are still reluctant to trust a long-lasting reversal in risk appetite. With the U.S. (verbally) attacking China, and China willing to respond, we cannot assume that the worst is behind us,” said

Charalambos Pissouros, a senior market analyst at JFD Brokers.

The euro is under pressure from concerns about next week’s European parliamentary elections and comments from Italian Deputy Prime Minister Matteo Salvini.

Salvini said on Thursday that he would “tear apart” EU budget rules that were “strangling” Italy if his party did well in the elections.

“Italy remains one of the factors keeping euro downside risks high,” said Credit Agricole FX strategist Manuel Olivieri.

The euro was steady at $1.1178 after falling to $1.1166 overnight, its lowest since May 6. It has fallen 0.5% this week.

The dollar, meanwhile, has also benefited as a safe-haven currency even as the United States and China remain locked in a trade dispute.

It was bolstered on Thursday by data that showed U.S. homebuilding increased more than expected in April.

On Friday, it held near a two-week high against its peers, supported by the strong data and a bounce in Treasury yields.

The dollar index against a basket of six major currencies stood little changed at 97.802 after reaching 97.882 on Thursday, its highest since May 3.

The Chinese yuan weakened as far as 6.9450 against the dollar, its weakest level since Nov. 30.

The Australian dollar stretched overnight losses and fell to a new 4-1/2-month trough of $0.6883. The Aussie had suffered big losses the previous day after soft domestic employment data raised expectations of an interest rate cut by the Reserve Bank of Australia.

Australia holds a parliamentary election on Saturday but analysts said U.S.-China tensions were likely to remain the biggest influence on its currency.

The Australian dollar hit a fresh five-month low on Thursday as investors came close to fully pricing in a rate cut for July on bruising domestic economic data and a swelling trade conflict between the United States and China.

In Europe, the Swedish crown led losses while optimism on the euro proved short-lived with trade tensions and upcoming European elections weighing on sentiment.

But it was the Aussie dollar that was firmly in focus after Australian unemployment rose to its highest in eight months, cementing views its central bank may be forced to lower rates soon to stimulate the economy.

The currency was down a quarter of a percent at $0.6933 in early European trade, having hit a new five-month low of $0.6893 in the Asian session.

“The Aussie has remained under pressure with labour and unemployment data being what it is, while RBA rate cut expectations have increased,” said Manuel Olivieri, an FX strategist at Credit Agricole.

“It will likely remain defensive with elections coming up this weekend, not to mention it is quite sensitive to risk sentiment,” he added.

Money markets are wagering a rate cut might come very soon, with futures now showing a 50-50 chance for a quarter-point easing in June. A move to 1.25% was put at a 90% probability for July and was more than fully priced by August.

Australians have a choice between tax cuts and greater public spending when they vote in a general election on Saturday, the starkest distinction in economic policy in years from the two main political parties.

Australia’s 10-year bond yield hit an all-time low of 1.639 percent.

The currency has also been hit in recent weeks by Sino-U.S. trade tensions – given Australia’s strong trade links with China – and news on that front was alarming on Thursday after Chinese telecoms giant Huawei was hit with severe sanctions by the world’s largest economy.

These trade tensions also hit European currencies, with the Swedish crown weakening 0.2 percent at 9.6145 per dollar, not far from an all-time low of 9.661 per dollar hit a week ago.

The euro meanwhile was flat to a touch higher on the day at $1.12045, following some gains the previous session after U.S. officials said President Donald Trump was expected to delay implementing tariffs on imported cars and parts by up to six months.

The loss of momentum in the single currency is likely down to worries around an upcoming European parliamentary election, in which anti-establishment parties may make significant gains.

“We think the euro will be much more about the domestic politics now and the risk that we get more populist comments, such as from the Italian Deputy PM,” said Olivieri of Credit Agricole.

Italian Deputy Prime Minister Matteo Salvini said on Wednesday European Union budget regulations are “starving the continent” and must be changed, a day after he roiled financial markets by saying Italy should be ready to break the rules.