Dollar bulls take a breather ahead of US CPI
The dollar stepped back from a tariff-driven rally on Wednesday, as traders awaited U.S. inflation data and news on the broader trade front, though hawkish remarks from Fed Chair Jerome Powell pushed up U.S. yields and lent some support against the yen.
In Asia, the dollar rose 0.7% to 153.56 yen, breaking above its 200-day moving average, but elsewhere it was nursing modest losses and traded at $1.0358 per euro.
Federal Reserve Chair Jerome Powell, in testimony on Capitol Hill, stuck to a view there was no hurry to lower interest rates, which pushed 10-year Treasury yields up about 4 basis points.
"The yen is always quite sensitive to dollar yields," said Nick Twidale, chief market analyst at ATFX Global in Sydney, noting that a break of the 200-day moving average may have exaggerated the yen's dip, in thin trade before U.S. CPI data.
U.S. CPI is published at 1330 GMT and economists polled by Reuters expect core consumer inflation to increase slightly to 0.3% for January. Speculators in the currency market are long dollars and some may be nervous that a softer reading could stoke bets on rate cuts and force an unwind of wagers on a higher dollar.
Data last week showed net U.S. dollar long positions against other G10 currencies stood around $31.5 billion.
Sterling, which rose about 0.7% on Tuesday, hovered at $1.2441 in Asia session. The Australian dollar held a more modest gain at $0.6291.
The European Union, Mexico and Canada have condemned U.S. President Donald Trump's decision to impose 25% tariffs on steel and aluminium imports and the European Commission head Ursula von der Leyen said there would be counter-measures.
Investors have assumed U.S. tariffs would be positive for the dollar, by reshaping trade flows and encouraging other countries to weaken their currencies to offset the taxes.
However, analysts say inflation implications are less clear cut and that it is hard to say where the chips will fall as tariffs and retaliatory actions take effect - leaving investors bullish on the dollar inclined to trim their positions a bit.
"I don't see any strong catalyst," said Imre Speizer, currency strategist at Westpac in Auckland.
The tariff-hit Canadian dollar was firm and near its strongest levels for the year so far at C$1.4295 per dollar, even as a White House official said steel tariffs would stack on top of a threatened blanket 25% levy on Mexico and Canada.
The Mexican peso and other emerging market currencies remain under pressure and near to deep recent lows.
Vietnam's dong made a record trough, squeezed by concerns a sizable trade surplus with the U.S. and big trade flows from China could invite tariffs.