By Brigid Riley
TOKYO (Reuters) – The U.S. dollar held near a one-week high against the Japanese yen on Thursday after a hotter-than-expected consumer prices reading, while the euro was shored up by news that Washington aims to begin talks with Russia to end the war in Ukraine.
U.S. President Donald Trump also said he would soon impose reciprocal tariffs on every country that charges duties on U.S. imports, keeping alive fears of a widening global trade war that threatens to accelerate U.S. inflation.
Against the yen, the dollar was down 0.06% at 154.33, not far off Wednesday’s high of 154.80 hit as U.S. Treasury yields climbed following inflation reading.
U.S. consumer prices increased by the most in nearly 1-1/2 years, up by 0.5% in January versus the previous month, while core index rose by 0.4%. Both were expected to rise by 0.3%.
Headline consumer price added 3.0% for the year, while core prices rose at an annual pace of 3.3%.
Market players are increasing bets the Federal Reserve will hold interest rates higher for longer, pricing in roughly 28 basis points worth of rate cuts for this year, versus around 37 basis points before the data.
“The Fed will now have ample justification to stay on hold and be able to see what government policies come into force and gauge their effects,” said Tom Nakamura, currency strategist and co-head of fixed income at AGF Investments.
Along with tariffs, U.S. policies regarding immigration, taxes and regulation may also affect the economy’s direction.
At his second congressional hearing this week, Fed Chair Jerome Powell on Wednesday reiterated that the central bank is in no rush to cut rates.
The U.S. producer price index release later on Thursday will provide clues as to how hot the Personal Consumption Expenditures price index, the Fed’s preferred inflation measure, may come in at on February 28.
The euro edged up 0.14% to $1.0398, buoyed as Trump ordered top U.S. officials to begin talks on ending the war in Ukraine.
The Russian rouble surged overnight to a 4-1/2 month peak against the dollar.
Sterling stood at $1.2456, up 0.09% so far on the day.
The dollar index, which measures the greenback against the yen, euro and other peers, ticked 0.03% lower to 107.88, after touching a one-week high of 108.52 in the previous session.
“On the margin a less dovish Fed is supportive for the U.S. dollar, but the main focus for markets in the short term will be the mix of policies coming out of Washington,” said AGF’s Nakamura.
After a dizzying couple of weeks filled with tariff news, traders have been trying to tease out how Trump’s threats will play out. Some market players are betting tariffs will be a plus for the dollar.
On Monday, Washington announced new 25% tariffs on all steel and aluminium imports into the United States, leaving trade partners scrambling.
The Canadian dollar was steady and the Mexican peso under some pressure, with a 25% tariff on goods from Mexico and Canada delayed until March 4 to allow for negotiations.
Trump last week imposed an additional 10% tariff on Chinese goods, and Chinese countermeasures took effect this week.
The offshore yuan traded at 7.3105 yuan per dollar, up about 0.02% in early Asian trade.
(Reporting by Brigid Riley; Editing by Jamie Freed)
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