Dollar strengthens against peers as markets digest inflation data, trade tensions

NEW YORK : The U.S. dollar strengthened against major currencies including the yen and the Swiss franc on Wednesday as data showed a slowdown in inflation although global trade tensions suggest that concerns about consumer prices and the economy will continue to weigh on markets.

Labor Department data on Wednesday showed a less-than-expected increase in U.S. consumer prices to 0.2 per cent last month, compared with the average forecast of 0.3 per cent, based on economists polled by Reuters.

That report comes on the back of a trade brinkmanship between the U.S. and its trading partners, marked by President Donald Trump's unpredictable announcements on tariffs.

In the latest episode, the European Union announced on Wednesday that it will impose counter tariffs on 26 billion euros ($28.39 billion) worth of U.S. goods from April, in response to blanket U.S. tariffs on steel and aluminium that came into force earlier in the day.

"There was a brief moment of a relief because CPI came in lower than expected and that created some currency volatility but I think the dollar direction is beginning to get a little worn out because of bigger trends and there's so much headline risk with Ukraine-Russia war or tariffs," said John Velis, Americas macro strategist at BNY.

The dollar strengthened 0.55 per cent to 148.59 yen against the Japanese yen. Against the Swiss franc, the dollar strengthened 0.07 per cent to 0.883. The greenback is trading down against both currencies so far this month.

The euro eased after hitting a five-month peak of $1.0947 on Tuesday as Ukraine said it was ready to support Washington's proposal for a 30-day ceasefire with Russia. The Kremlin said on Wednesday it was waiting for details from the U.S.

Europe's single currency has been flying high on the promise of massive fiscal spending by Germany, although the situation has become more complex after the Greens party vowed to block those plans and unveiled rival proposals.

The euro was trading up 0.27 per cent at $1.0889. The currency has gained nearly 5 per cent against the U.S. dollar so far in March.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro,rose 0.22 per cent to 103.68. It is on track to snap seven straight sessions of losses.

"There are so many, so many moving parts," said Kenneth Broux, head of corporate research FX and rates at Societe Generale.

"We're not seeing any safe haven in European assets this morning because of retaliation of the trade war," Broux added.

The Bank of Canada trimmed its key policy rate by 25 basis points to 2.75 per cent and warned of "a new crisis" as it tried to prepare the country's economy for the damage that Trump's tariffs could wreak.

Trump walked back on a pledge to double tariffs on steel and aluminum from Canada to 50 per cent, just hours after announcing the higher tariffs on Tuesday. The switch came after a Canadian official also backed off his own plans for a 25 per cent surcharge on electricity.

The U.S. dollar weakened against the Canadian dollar, trading down 0.14 per cent to C$1.44 per dollar. It is down 0.36 per cent against the loonie in March.

The British Sterling eased after hitting a four-month high of $1.29900 on the session. It was down 0.13 per cent to $1.29300.

($1 = 0.9158 euros)