US dollar rises as markets consolidate positions; outlook remains downbeat

By Chibuike Oguh, Lucy Raitano

NEW YORK/LONDON (Reuters) -The U.S. dollar rose against most major currencies including the Swiss franc and the euro on Thursday, as investors consolidated positions after selling the greenback for most of this week, but the outlook remained weak amid concerns about slowing growth arising from the Trump administration's trade policies.

U.S. President Donald Trump threatened to impose a 200% tariff on wine, cognac and other alcohol imports from Europe, opening a new front in a global trade war that has roiled financial markets and raised recession fears.

Trump on Wednesday also threatened to retaliate against the EU's announcement that it would place counter-tariffs on $28 billion worth of U.S. imports from next month.

Labor Department data on Thursday showed that U.S. producer prices were unexpectedly unchanged on a monthly basis in February, but the prospects of tariffs are unlikely to keep prices down in the coming months. 

"We've had a very large dollar weakening move in the previous days and weeks and it feels like we're entering a bit of a consolidation period," said Vassili Serebriakov, FX strategist at UBS in New York, who raised his year-end forecast for the euro against the dollar to $1.120 from $0.990.

"We do see the possibility that the dollar recovers because we're still being hit with tariffs news and we have this early April reciprocal tariff deadline coming up."

The dollar strengthened 0.11% to 0.883 against the Swiss franc.

The euro was down 0.28% to $1.0856 against the dollar but near the five-month top of $1.09470 hit earlier in the week.

Germany's fiscal reset plan has provided additional support to the euro. Germany's outgoing lower house of parliament will hold a special session on Thursday to debate the 500 billion euro fund for infrastructure and changes to borrowing rules in Europe's largest economy to bolster defence.

"We are due for a dollar consolidation and a rebound, but it will depend on how much the trade policy and tariffs take precedence over the drivers of dollar weakness, which are European recovery and fiscal spending and weaker U.S. data," Serebriakov added.     

STRONGER YEN

The Japanese yen strengthened 0.39% against the greenback to 147.84 per dollar, boosted by expectations of higher Japanese interest rates later this year.

While the Bank of Japan is expected to leave its key interest rate unchanged at next week's policy meeting, more than two-thirds of economists polled by Reuters expect a rise of 25 basis points to 0.75% in the third quarter, most likely in July.

Currency markets also were processing data from Wednesday showing U.S. consumer prices rose slightly less than expected in February, but the relief it offered could be temporary as the data did not fully capture the cascade of Trump's tariffs.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro,  rose 0.2% to 103.80. It is on track for two straight days of gains.

The Canadian dollar weakened 0.39% versus the greenback to C$1.4424 per dollar, a day after the Bank of Canada trimmed its key policy rate by 25 basis points, with trade disputes leaving traders on edge.

"The choppiness and volatility (in the dollar) are probably the bigger story, and it's certainly being driven by uncertainty about tariffs, uncertainty about a potential trade war and whether it's uncertainty about the emerging geopolitical environment," said Marvin Loh, senior global market strategist at State Street in Boston.

(Reporting by Rae Wee in Singapore and Lucy Raitano in London; Editing by Jamie Freed, Rachna Uppal, Angus MacSwan and Paul Simao)