April 10 (Reuters) - The dollar index fell sharply on Thursday and had flirted with its steepest drop since November 2022 as an intensifying U.S.-China tariff conflict prompted investors to abandon the greenback in favor of other havens. The Swiss franc surged over 3% to its highest level since 2015 and gold rose to a new record after a report that President Donald Trump raised the total levy on China imports to 145%. Trump later said he would love to get a deal with China to end an escalating trade war. The dollar was also pressured by falling Treasury 2-year yields after an unexpected decline in consumer prices in March and strong selling at the London afternoon fix. The drop leaves inflation running at an annual rate of 2.4%, slightly above the 2% Fed inflation target. DXY was nearing the key 100 psychological level with PPI, a University of Michigan survey and Fed speakers due Friday.
Fed officials remained relatively steadfast on policy. Dallas Federal Reserve President Lorie Logan gave remarks that made clear her immediate concern of keeping inflation in check while Chicago Fed President Austan Goolsbee said the impact of tariffs does not suggest an obvious monetary policy response. Federal Reserve Governor Michelle Bowman said the U.S. economy is strong and declined to give a view on how tariffs impact inflation or the labor market. Kansas City Fed president Jeff Schmid said he was "squarely focused" on inflation and financial markets are adjusting well to recent volatility.
EUR/USD surged above its 2024 high, reaching 1.1230 before pulling back. Risk reversals are now bullish across tenors with the one-year bid for euro calls for the first time since 2021. Technicals show upside EUR/USD risks with a move above the 2023 high of 1.1276 putting focus on the 1.1500-1.16500 resistance zone. The Dax closed up 5% after the EU paused retaliatory countermeasures, with the European Central Bank expected to cut next week. Handelsblatt reported that the European Union and China have agreed to look into setting minimum prices versus using tariffs on Chinese-made electric vehicles.
GBP/USD rose over 1% to a session high late in the New York session as U.S. equity market losses were pared. A close above the 1.3010 March 19 high would likely see it extend to the April 4 high of near 1.31. Bank of England Deputy Governor Sarah Breeden said the impact on UK inflation from U.S. tariffs remained unclear.
U.K. GDP for February and S&P's sovereign credit review are slated for Friday.
USD/JPY fell toward Wednesday's low near 144 though lacked downward momentum due, in part, to EUR/JPY gains. Trump said he does not want U.S. Steel Corp to go to Japan even as the company negotiates with Nippon Steel. USD/JPY options skews eased marginally, pointing to less downside risk. The pair has largely held to a 144-148 range the last few sessions.
Treasury yields were mixed as the curve steepened sharply. The 2s-10s curve was up about 13 basis points to +40.0bp.
The S&P 500 fell 3.33%. Oil sunk 3.3% and the EIA warned of lower demand.
Gold rose 3.0% and copper jumped 5.0% as the dollar fell. Heading toward the close: EUR/USD +1.96%, USD/JPY -1.8%, GBP/USD +0.96%, AUD/USD +1.06%, =USD -1.67%, EUR/JPY +0.11%, GBP/JPY -0.8%, AUD/JPY -0.77%.(Editing by Burton Frierson Reporting by Robert Fullem)
