Dollar gains on improving US business activity, tariff optimism

By Karen Brettell

NEW YORK (Reuters) -The dollar jumped to multi-week highs against the euro and yen on Monday after data showed U.S. business activity picked up in March, after earlier rising against Japan's currency on reports U.S. President Donald Trump will be flexible with upcoming tariffs.

In cryptocurrencies, bitcoin was also bolstered by improving risk sentiment and reached $88,772, the highest since March 7.

S&P Global's flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, increased to 53.5 this month from 51.6 in February. A reading above 50 indicates expansion in the private sector.

The services sector accounted for the rise in the PMI, partly attributed to a thaw in temperatures as spring sets in. Manufacturing slid back into contraction territory after two straight months of growth.

"Overall, the services side is a much more important component of the U.S. economy so I take this as good news," said Adam Button, chief currency analyst at ForexLive in Toronto.

The greenback was boosted against the Japanese yen earlier on Monday after Bloomberg News and the Wall Street Journal reported that the Trump administration is likely to exclude a set of sector-specific tariffs while applying reciprocal levies on April 2.

"Everyone was initially shocked by the scope and size of tariff talk, but lately markets are taking a more measured view," Button said.

The dollar was last up 0.7% on the day against the Japanese currency at 150.35 yen. It earlier reached 150.39, the highest since March 3.

"A wave of cautious optimism is washing across foreign exchange markets on hopes that next week’s U.S. tariff announcement will prove less extreme than had previously been feared," said Karl Schamotta, chief market strategist at Corpay in Toronto.

That said, "traders are avoiding big directional positions, given that the U.S. administration’s tariff plans are still likely to touch off another round of retaliatory strikes from major trading partners - damaging the U.S. and global economies, and triggering more turbulence in currency markets. Volatility levels look likely to remain elevated," Schamotta said.

The dollar has been under pressure for most of this year as the market's assumptions that Trump would quickly usher in pro-growth policies transformed into worries about the implementation and ultimate impact of trade levies.

Last month, Trump said he intended to impose automobile tariffs of around 25%, along with similar duties on semiconductors and pharmaceutical imports. However, after lobbying efforts from the three largest U.S. automakers seeking a waiver, he later agreed to postpone certain auto tariffs.

The euro fell 0.09% to $1.0804 and slid as low as $1.079, its weakest since March 7.

Euro zone business activity grew at its fastest pace in seven months in March, supported by an easing in the long-running manufacturing downturn despite slower growth in services, a survey showed.

The shared European currency had been buoyed to the highest since early October at $1.0955 last week on optimism over Germany's move to loosen fiscal constraints in order to boost military and infrastructure spending.

However, the euro slipped back in recent days in the run-up to the actual ratification of the change, with Germany's upper house of parliament passing the bill on the so-called debt brake on Friday.

Sterling gained 0.09% to $1.2926 ahead of British finance minister Rachel Reeves' spring budget update later this week. [GBP/]

The Turkish lira slightly weakened to about 38 per dollar after a Turkish court on Sunday jailed Istanbul Mayor Ekrem Imamoglu, President Tayyip Erdogan's main political rival, pending graft charges, which Imamoglu denies.

The lira briefly lurched to a record low of 42 per dollar last week, when Turkey's central bank said it had suspended one-week repo auctions and hiked its overnight lending rate to 46%, a move that economists say amounts to a tighter policy stance.

Markets also have an eye on a potential Black Sea ceasefire deal as U.S. and Russian officials began talks in Saudi Arabia on Monday.

(Reporting by Karen Brettell; additional reporting by Kevin Buckland and Yadarisa Shabong; editing by Stephen Coates, Edwina Gibbs; Hugh Lawson and Mark Heinrich)