- US dollar edges up as tariff uncertainty is expected to linger
- BofA data reveals official sector selling of euro
- Sterling down after CPI, UK budget update in focus
- Euro close to its 3-week low
March 26 (Reuters) - The U.S. dollar edged up on Wednesday as investors weighed up uncertainty about the U.S. economic outlook and speculation over the timing and scale of potential U.S. tariffs.
Next week, U.S. President Donald Trump has threatened to impose - or at least provide details of - a new round of tariffs on autos, chips and pharmaceuticals.
British markets are in focus as finance minister Rachel Reeves was set to announce cuts to her spending plans later in the day, in an attempt to show investors that she can be trusted to fix the public finances as growth falters.
"Investors are keeping their positions light ahead of a U.S. tariff announcement," said Athanasios Vamvakidis, head of forex strategy at BofA.
"I would suggest that even if headline numbers are high it will take time to implement tariffs leaving room for potential negotiations," he added.
For the quarter, the dollar index , which had rallied strongly between September and January, is headed for a roughly 4% drop. It was last up 0.05% at 104.28.
"We would caution against extrapolating a large follow-through beyond the day of the announcement given all these moving parts," said George Saravelos, head of forex strategy at Deutsche Bank, mentioning fiscal stimulus in Germany, Canada and China and fiscal tightening in the U.S.
Data released on Tuesday showing U.S. consumer confidence plunged to the lowest in more than four years in March highlighted how uncertainty is weighing heavily on households.
The euro , which spent a week edging lower from a five-month high, has dropped to $1.0776.
The single currency jumped in early March after Germany approved plans to ramp up its fiscal spending.
BofA reported that its proprietary flow data showed an acceleration of selling from the official sector — which includes sovereign wealth funds and central banks — of euros against the dollar beginning last week.
"Such flows suggest the official sector has yet to believe in the fading of the 'U.S. exceptionalism' and the 'European renaissance' that could trigger a potentially substantial rebalancing towards EU assets," BofA's Vamvakidis added.
Sterling weakened after data showed British inflation slowed to an annual rate of 2.8% in February from 3.0% in January, while markets await the budget update.
"The good news is that today’s (inflation) data should provide the Bank of England a path to continue with its gradual dial down of restrictive policy," said Sanjay Raja, chief UK economist at Deutsche Bank Research, adding that he sees a May rate cut "more likely than not."
The pound was down 0.28% to $1.2908 .
Money markets fully priced in a 25 bps BoE rate cut in August and a 80% chance of such a move in June. They also discounted 43 bps by December, which implies an 80% chance of a 25 bps second easing move by year-end. IRPR
"The narrative of tighter fiscal and looser monetary policy should be sterling negative," said Chris Turner head of forex strategy at ING.
"It looks like the market is under-pricing this year's BoE easing cycle," he added, suggesting there could be as many as three rate cuts.
After briefly crossing below 150 yen , the dollar floated to 150.20 yen, but traders lacked conviction, while a messy week of tariff hits looms.
The trade-sensitive Australian dollar hovered just above 63 cents, wavering only slightly when February consumer inflation data came in a bit softer than expected.
In emerging markets, Turkey's lira found a footing just below 38 to the dollar after the finance minister and central bank governor told investors they would do whatever was needed to tame market turmoil triggered by the arrest of President Tayyip Erdogan's main political rival.
Reporting by Stefano Rebaudo; Editing by Jamie Freed, Bernadette Baum and Hugh Lawson
Source: Reuters