By Brigid Riley
TOKYO (Reuters) -The U.S. dollar stabilised around a near three-week trough on Friday as traders took solace that Washington’s reciprocal tariffs were not immediately imposed, while a U.S. producer price report soothed inflation concerns.
In his latest trade salvo, U.S. President Donald Trump directed his economic team on Thursday to formulate plans for reciprocal tariffs on every country that imposes taxes on U.S. imports.
But the directive stopped short of piling on fresh tariffs, instead kicking off what could be weeks or months of investigation into the levies imposed on U.S. goods.
That buoyed expectations that there may yet be room for countries to negotiate, cushioning the blow to sentiment.
“Tariff ambiguity still reigns, but markets are currently drawing some comfort from the news the next set won’t come into effect before April,” Ray Attrill, head of FX strategy at National Australia Bank, wrote in a research note.
Some traders expect tariffs to benefit the dollar, but the delayed timeline of the newest announcements did little to lift the greenback off its weakest since late January following Thursday’s PPI data.
The euro meandered to its highest in more than two weeks against the dollar at $1.046925 in Asian trade, supported by optimism around potential peace talks between Ukraine and Russia.
On Wednesday, Trump discussed the war in Ukraine in phone calls with Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskiy.
He said on Thursday that Ukraine would have a seat at the table during any peace negotiations with Russia.
The EU bloc currency was last down 0.1% at $1.0454 ahead of a second read of fourth quarter GDP and employment data.
Sterling touched $1.2572, its firmest since January 7, and was last trading hands at $1.2552, down 0.13%.
SOFTENED INFLATION FEARS
Thursday’s U.S. PPI report eased some concerns about the stickiness of inflation in the world’s largest economy that were sparked by a hotter-than-expected consumer prices report earlier this week.
While headline PPI came in above forecasts, a closer look under the hood suggests core PCE inflation, the Federal Reserve’s preferred measure, is likely to be lower than feared for January.
Futures traders have about 33 basis points of cuts priced in for this year. That is up from 29 basis points before Thursday’s data, but down from 37 basis points before the CPI data was released on Wednesday.
Uncertainty remains about the outlook for the U.S. economy, with questions about the way Trump administration policies will play out chief among them.
Although PPI details were “more favourable,” key components of CPI in January showed strong increases, indicating PCE may still rise from the previous month at a pace above the Fed’s 2% inflation target, said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
“We expect the Fed to remain cautious amid concerns about the stalled disinflation process and President Trump’s tariff increases,” she added.
The dollar index, which measures the greenback against a handful of peers including the euro, was nearly flat at 107.11 after sliding to 106.99 earlier in the session.
U.S. retail sales figures for January are due later in the day.
U.S. Treasury yields declined as investors took comfort in the PPI numbers, helping the yen to claw back most of its losses after weakening to 154.80 on Wednesday.
The Japanese currency was up 0.16% at 152.55, but was on track for its first weekly loss since early January.
The yen has made significant gains since the start of the year as investors ramped up bets that the Bank of Japan will continue increasing interest rates.
The Canadian dollar was similarly buoyed by the fall in U.S. Treasury yields, hovering just below a two-month high of C$1.4178 hit during Asian trading hours.
(Reporting by Brigid Riley; Editing by Jacqueline Wong and Sonali Paul)
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