March 11 (Reuters) - The dollar index fell to its lowest point since October on Tuesday as U.S. and Canadian tariff threats affected investor sentiment, while the prospect of a German spending package and potential ceasefire in Ukraine supported the euro. Risk appetite soured earlier in the New York session after U.S. President Donald Trump, responding to Ontario Premier Doug Ford's decision to impose a surcharge on the province’s electricity exports, threatened further tariffs on Canadian steel and aluminum. Ford later suspended the electricity tariffs saying cooler heads need to prevail. Attention turns to Wednesday’s CPI report for February. The EUR/USD reached its highest point since the U.S. elections in early November on optimism that a deal on German debt reform and defense spending will eventually be struck. The pair surpassed its November 6 high of 1.0937 following news that Ukraine has agreed to a U.S. proposal for an immediate 30-day ceasefire and steps toward lasting peace. Narrower German-U.S. yield spreads underpinned the pair, with option accounts betting it might reach 1.15 in the coming months. Further gains would put the 2024 high of 1.1213 in view, although overbought conditions may slow progress.
Additionally, EUR/CHF surged over 1.0% to its highest level since July.
GBP/USD climbed to a new four-month high, although pound weakness against the euro slowed its advance. EUR/GBP turned overbought as upward momentum continued beyond its 200-day moving average of 0.8384. UK GDP data for January is scheduled for release on Friday.
USD/JPY turned higher with Treasury yields after Ford's actions. Softer volatilities, short-covering and expected Japanese demand near the budget rate of 146.80 is seen keeping the pair supported. A bearish trend of lower USD/JPY highs was disrupted earlier after a Nikkei report that Japan's government pension fund will not alter its equity allocation, which could potentially support the yen.
Treasury yields were up 4 basis points. The 2s-10s curve was up about 2 basis points at +34.2bp.
The S&P 500 rose 0.18% after being down for most of the session. Oil rose and gold climbed 1.01% as the dollar weakened.
Copper jumped 2.91% following a decline in LME inventories
Heading toward the close: EUR/USD +0.90%, USD/JPY +0.31%, GBP/USD +0.60%, AUD/USD +0.40%, =USD -0.54%, EUR/JPY +1.23%, GBP/JPY +0.93%, AUD/JPY +0.72%.(Editing by Burton Frierson Reporting by Robert Fullem)
