March 12 (Reuters) - The dollar traded mixed on Wednesday as U.S. equity markets gained following a benign U.S. inflation report, downplaying concerns about newly implemented U.S. steel and aluminum tariffs. Consumer prices rose 0.2% in February, below the average forecast of 0.3%, matching the rise in core CPI. The annual rate of headline inflation slowed to 2.8% though there were elements of the report that suggest PCE, the Fed favored inflation reading, may be sticky. U.S. PPI and weekly jobless claims are data risks on Thursday. In response to U.S. metal tariffs, Canada said it will impose 25% retaliatory tariffs on U.S. goods worth C$29.8 bln from March 13. The European Union announced it will impose tariffs on 26 billion euros worth of U.S. goods from April. Britain did not immediately retaliate. U.S. Present Trump said reciprocal tariffs are coming and that Ireland had used tax policies to lure U.S. companies. He also offered upbeat messaging about a proposed Ukraine ceasefire as officials get ready to visit Russia.
The Bank of Canada lowered its key policy rate by 25 basis points to 2.75%, as expected, and raised concerns about inflationary pressures and weaker growth stemming from trade uncertainty.
EUR/USD eased 0.2% on waning optimism about the expected German spending package and on concerns tariffs may impact growth. ECB President Christine Lagarde said the euro zone economy is facing shocks from trade, defense and climate issues, possibly amplifying inflation volatility and raising the risk that price growth becomes more persistent. The 21-day upper Bollinger, currently 1.0933, acts as resistance as overbought conditions are worked off though bullish medium-term technicals may keep pair above its 1.0723 200-day moving average. Among euro crosses, EUR/AUD was lower after a 13-day advance sent it to its most overbought position in five years. GBP/USD rose 0.2% and was looking to add to gains on expectations that U.S. trade policy will have only limited impact on the U.K. economy. Cable would need to slide below its 200-day moving average of 1.2790 to start forcing newly-minted longs out of positions. USD/JPY held on to gains, finding bids near Tuesday's high of 148.12 after the CPI report. A favorable risk tone, rising oil and buoyant EUR/JPY underpin the pair. Its 21-day moving average near 150 is seen as a possible mean-reversion target on further gains. Treasury yields were up 2 to 5 basis points as the curve flattened. The 2s-10s curve was down about 1 basis point to +31.5bp.
The S&P 500 rose 0.68% fueled by tech shares. WTI oil rose over 2% after data showed tighter U.S. fuel inventories and after Iran's Supreme Leader Ayatollah Ali Khamenei rejected holding negotiations with the United States over a nuclear deal. Gold rose 0.63% on tariff uncertainty and the cooler U.S. inflation data.
Copper rose 1.71% on the prospect of more metal tariffs Heading toward the close: EUR/USD -0.21%, USD/JPY +0.36%, GBP/USD +0.19%, AUD/USD +0.30%, =USD +0.09%, EUR/JPY +0.17%, GBP/JPY +0.55%, AUD/JPY +0.69%.(Editing by Burton Frierson Reporting by Robert Fullem)
