Dollar drifts near multi-week low as tariff fears ease

By Brigid Riley and Amanda Cooper

TOKYO/LONDON (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.

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 he stopped short of quickly unveiling another round of tariffs, instead kicking off what could be weeks or months of investigation into other countries’ levies imposed on U.S. goods.

That buoyed expectations that there may yet be room for target countries to negotiate, which helped shore up sentiment.

The dollar rallied 7% against a basket of currencies last year, as investors prepared for Trump’s tariffs that threatened to fire up inflation, among other things.

Since taking office on January 20, Trump has announced tariffs on Mexico, Canada and China, but has these have been either delayed or watered down, which has dented the dollar.

The euro and the pound, which are in the firing line for reciprocal tariffs, have risen 2% and 3%, respectively, since Trump’s inauguration.

“The lack of concern about the latest tariffs from Trump, suggests that the FX market continues to think that President Trump is posturing, and will tone down the tariffs at the last minute,” XTB research director Kathleen Brooks said.

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 wholesale inflation data. 

The euro edged up to its highest in over two weeks against the dollar at $1.04823, 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.

Sterling, meanwhile, rose 0.18% on the day to $1.2591, its strongest since early January, after data earlier this week soothed some concern about the resilience of the UK economy.

Thursday’s U.S. producer price index, which measures inflation at the farm and factory gate, showed some abatement in price pressures, particularly from a decline in energy costs.

That helped repair some of the blow to confidence from this week’s hotter-than-expected consumer prices report, which prompted traders to rule out much more than one rate cut this year from the Federal Reserve.

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.

“We expect the Fed to remain cautious amid concerns about the stalled disinflation process and President Trump’s tariff increases,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

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 steady at 152.775, having gained nearly 3% so far in 2025, as investors ramp up bets on the Bank of Japan raising rates again this year.

(Additional reporting by Brigid Riley in Tokyo; Editing by Jacqueline Wong, Sonali Paul and Kim Coghill)