Major currencies steady as markets assess PPI optimism, tariff outlook

• U.S. PPI report eases inflation concerns, sending dollar and Treasury yields lower

• Euro supported by optimism over Ukraine-Russia peace talks

• Trade war anxieties ease amid perceived room for tariff negotiations

The U.S. dollar and major currencies held steady on Friday as traders evaluated the impact of Washington's reciprocal tariff plans, which will not be implemented immediately, while a U.S. producer price report alleviated inflation concerns.

U.S. President Donald Trump instructed his economic team on Thursday to develop plans for reciprocal tariffs on countries that impose taxes on U.S. imports. Although not immediate, the tariffs could take effect within weeks as the White House reviews bilateral trade relationships.

The delayed implementation boosted hopes for potential negotiations. "Tariff ambiguity still reigns, but markets are currently drawing some comfort from the news the next set won't come into effect before April," said Ray Attrill, head of FX strategy at National Australia Bank.

The dollar hovered near its weakest since January 27 at 107.25, as the PPI report overshadowed tariff concerns. Despite headline U.S. PPI exceeding forecasts, components suggested that core PCE inflation, the Federal Reserve's preferred gauge, may be lower than feared for January.

Carol Kong, currency strategist at Commonwealth Bank of Australia, noted that while PPI details were "more favourable," consumer price components in January indicated a rise above the Fed's 2% target. "We expect the Fed to remain cautious amid concerns about the stalled disinflation process and President Trump's tariff increases," Kong added.

Futures traders priced in about 33 basis points of cuts for the year, up from 29 basis points before Thursday's data but down from 37 basis points prior to Wednesday's CPI release. The dollar index remained nearly flat at 107.07.

U.S. Treasury yields dipped following the PPI report, aiding the yen's recovery to 152.64 after it weakened to 154.80 on Wednesday. The Japanese currency, however, was poised for its first weekly loss since early January.

The euro traded near its highest level in over two weeks at $1.046925, supported by optimism around potential Ukraine-Russia peace talks. On Wednesday, Trump spoke with Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskiy, affirming Ukraine's participation in future negotiations.

Sterling reached $1.25705, its highest since January 7, before easing to $1.256. British GDP data on Thursday showed a surprise 0.1% growth in the final quarter of 2024.

The Canadian dollar, bolstered by lower U.S. Treasury yields, hovered just above its two-month high of C$1.4184 reached on Thursday.

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