By Kevin Buckland
TOKYO (Reuters) -The dollar drifted slightly higher on Wednesday in indecisive trading as a lack of clarity on President Donald Trump's plans for tariffs kept financial markets guessing.
Trump said late on Tuesday that his administration was discussing imposing a 10% tariff on goods imported from China on Feb. 1, the same day that he previously said Mexico and Canada would face levies of around 25%.
He also vowed duties on European imports, without providing further details.
Despite those threats, a lack of specific plans from Trump's first day in office saw the dollar start the week with a 1.2% slide against a basket of major peers. It stabilized on Tuesday, ending flat after an attempted rebound fizzled, with U.S. officials saying any new taxes would be imposed in a measured way.
The dollar index, which tracks the currency against six top rivals, was flat at 108.14 as of 0625 GMT.
The dollar rose 0.23% to 155.87 yen, while the euro slipped 0.17% to $1.0410, while sterling eased 0.13% to $1.2343.
"While Trump threatened tariffs up to 25% on Mexico and Canada, he refrained from enacting them despite signing several executive orders," said Tony Sycamore, an analyst at IG.
"His decision not to target China is being taken as a possible sign of a more cautious approach to tariffs than promised during his campaign, reducing inflation risks and potential hawkish Federal Reserve actions."
Traders expect a quarter-point Fed interest rate cut by July, while another reduction by year-end is considered a coin toss.
The Canadian dollar eased about 0.1% to C$1.4337 versus its U.S. counterpart, following a volatile week that saw it tumble as low as C$1.4520 overnight for the first time since March 2020, feeling additional pressure from cooling inflation last month.
The Mexican peso lost about 0.15% to 20.6430 per dollar.
China's yuan weakened about 0.24% to 7.2865 per dollar in offshore trading, although that was after pushing to the strongest level since Dec. 11 on Tuesday at 7.2530.
"A 10% tariff on China imports would be far below the 60% rate he mentioned in his campaign," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
"On top of this is the general sense that Trump is not pursuing maximalist trade protectionism in his early actions, but appears to be positioning for trade negotiations," Tan said.
"Altogether these suggest that the U.S. dollar could drop further."
Elsewhere, New Zealand's dollar slid 0.42% to $0.5655 after inflation in the fourth quarter grew at an annual rate of 2.2%, comfortably within the central bank's target range of 1% to 3%.
Traders currently see 65% odds that the Reserve Bank will cut rates half a percentage point at its next policy meeting in February.
"CPI dropped again and normalisation of rates is in full swing", undermining the kiwi dollar, said James Kniveton, senior corporate FX dealer at Convera.
The Australian dollar fell 0.24% to $0.6258.
(Reporting by Kevin BucklandEditing by Shri Navaratnam and Kim Coghill)
Did you find this insightful?
Bad
Just Okay
Amazing