By Stefano Rebaudo and Rae Wee
(Reuters) -The U.S. dollar struggled for direction on Tuesday as markets became increasingly numb to U.S. tariff threats while awaiting testimony from Federal Reserve Chair Jerome Powell later in the day and inflation data on Wednesday.
Analysts said the risks of U.S. import duties remained, but there were good reasons to monitor fundamentals.
Powell will deliver his semiannual monetary policy testimony before the Senate Banking, Housing and Urban Affairs Committee at 1500 GMT. U.S. inflation data is due on Wednesday, following strong jobs figures that supported U.S. Treasury yields and the greenback last week.
U.S. President Donald Trump moved to substantially raise tariffs on steel and aluminium imports and said he would announce plans to impose reciprocal tariffs on other countries over the coming days.
Futures priced in around 40 basis points worth of Fed rate cuts by the year-end which implies one 25 bps cut and a 60% chance of a second easing move.
Recent comments from Fed officials have underscored their no rush approach to further monetary easing, particularly as they wait for further clarity over how Trump’s policies will affect economic growth and inflation.
The U.S. dollar index — which gauges the dollar’s value relative to a basket of six major currencies — was flat at 108.38. It rose 0.37% last week, in its biggest daily rise in almost a month, after U.S. jobs data.
“The threat of more U.S. tariffs remains, also against the European Union. Retaliation could even lead to a tail risk scenario of a global trade war,” said Athanasios Vamvakidis, global head of forex research at BofA.
“Even if the worst is avoided, we are concerned that prolonged uncertainty will have negative implications for the global economy,” he added.
The European Union will not let the decision by the U.S. to impose import tariffs on European steel go unanswered, European Commission President Ursula von der Leyen said on Tuesday.
The euro was down 0.01% at $1.0305, while sterling dipped 0.01% to $1.2363.
A White House official confirmed the 25% tariffs on steel and aluminium imports will take effect on March 4.
Analysts said steel and aluminium tariffs could be based on national security grounds and implemented immediately. However, broad-based reciprocal tariffs will take longer due to required preparatory work.
The U.S. dollar rose 0.05% against the Canadian dollar to C$1.4324, but the loonie was still some distance away from a 22-year low hit earlier this month.
Canada, Brazil, Mexico, South Korea and Vietnam are the biggest sellers of steel into the U.S., according to American Iron and Steel Institute data, while Canada is the dominant supplier of imported aluminium.
Bank of England policymaker Catherine Mann said companies will struggle to raise prices as consumers are hit by job losses and spending softens, the Financial Times reported on Tuesday.
The pound dropped 0.2% to $1.2342.
The yen was up 0.03% at 151.94 per dollar.
The Japanese currency has been among the best-performers since January’s Bank of Japan meeting, with investors focused on the divergence between real yields in Japan and the U.S.
The Australian dollar rose 0.15% to $0.6285.
Australian Prime Minister Anthony Albanese said on Tuesday Trump has agreed to consider exempting Australia from his steel and aluminium tariffs, in what Albanese called a constructive phone call with the U.S. President.
(Reporting by Stefano Rebaudo and Rae Wee; Editing by Bernadette Baum)
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