Dollar steady, yen strengthens as traders mull Ukraine peace talks

The dollar held steady against a range of currencies on Wednesday while the yen strengthened, as traders focused on talks over a Ukraine ceasefire and digested the latest round of tariff threats from US President Donald Trump.

The pound, meanwhile, got a small lift from a stronger-than-expected UK inflation print.

The dollar index last stood at 107.06, up 0.047 per cent after dropping 1.2 per cent last week. The yen was stronger against the dollar, up 0.24 per cent at 151.675.

Trump's administration said on Tuesday it had agreed to hold more talks with Russia on ending the war in Ukraine after an initial meeting that excluded Kyiv, a departure from Washington's previous approach that rallied US allies to isolate Russian President Vladimir Putin. 

Francesco Pesole, forex strategist at ING, pointed to the market's base case that a peace deal in Ukraine might be reached at some point. Meanwhile, the EU's exclusion from the table at peace talks is seen as spurring safe-haven demand into the yen and out of the euro, he said.

The euro was last down 0.35 per cent against the yen at 158.415, while holding relatively flat against the dollar at $1.0443.

Pesole highlighted the latest raft of tariff threats from Trump, but said the market is more focused on news around a potential Ukraine peace deal in the short-term.

"There is a residual sort of reluctance in markets to see whether Trump will indeed go ahead with tariffs on trade partners," he said.

Trump said on Tuesday he intends to impose auto tariffs "in the neighborhood of 25 per cent" and similar duties on semiconductors and pharmaceutical imports, the latest in a series of measures threatening to upend international trade. 

In a note, Commerzbank FX analysts/strategists said that the currency market is largely ignoring the news.

"Amid all this chaotic, childish back and forth of the presidential tariff announcements, let's not lose sight of what will ultimately come out of it: probably fewer tariffs than expected when he took office, but still substantial ones," they wrote.

In the UK, official data showed inflation speeding up by more than expected to hit a 10-month high of 3.0 per cent in January and is likely to rise further soon, testing the Bank of England's confidence that price pressures will ease over the longer term.

Sterling was up 0.1 per cent at $1.26150, marching to a fresh two-month high immediately after the data before tempering gains.

Against the euro, the pound was up 0.1 per cent at 82.775 pence. Pesole said the relatively safe position of the UK on trade and the latest inflation figures made the pound more attractive than the euro.

Elsewhere, the Reserve Bank of New Zealand reduced its benchmark rate by 50 basis points to 3.75 per cent on Wednesday as widely expected and signalled future moves would likely be smaller, leaving the currency up 0.4 per cent on the day at $0.57270.