March 28 (Reuters) - The dollar index fell alongside U.S. share prices on Friday following data suggesting some potentially stagflationary tendencies in the economy, with tariffs possibly intensifying price pressures. The closely-watched PCE price index rose 2.5% annually in February, as expected, though an index of core prices rose an above-forecast 2.8%. The University of Michigan consumer confidence for March was revised lower with 12-month inflation expectations rising to 5.0%, the highest level in nearly 2-1/2 years. Several leaders encouraged the U.S. administration not to impose tariffs next Wednesday. U.S. President Donald Trump and Prime Minister Mark Carney spoke on Friday, describing the conversation as productive, though both countries remain on a course to impose tariffs next week. Trump's tariff policy announcement is scheduled for April 2 -- dubbed "Liberation Day" -- following a report on unfair trade practices a day earlier. Treasury yields slid across tenors with the two-year falling to 3.91% as quarter-end nears. Odds of a 25 basis point rate cut at the June Fed meeting are around 88%. San Francisco Federal Reserve Bank President Mary Daly said flat progress on inflation hurts confidence in rate cut outlook. She had pencilled in two interest-rate cuts this year. EUR/USD rose after the U.S. data and a report that the EU plans concessions after reciprocal tariffs hit. Germany's Finance Minister, Joerg Kukies, warned about the impact of tariffs and said Berlin was working to prevent an escalating trade war. ECB policymaker Joachim Nagel, though encouraged by recent inflation data, warned against over-optimism.
EUR/USD failed to top Monday's high due to the risk-off tone of the market. However, option accounts see a growing chance it may accelerate upwards with three-month risk reversals, at 0.16% bid for calls, the most euro bullish since 2020. Nearby support is at its 200-day moving average of 1.0727 and the 21-day is set to eclipse the 100-day moving average at 1.0520.
GBP/USD eased due to position-squaring before the weekend. Cable hovers above its 21-day moving average at 1.2903 though is struggling to recapture 1.30 as investor sentiment deteriorates. Risk reversals are the most bullish since September ahead of next week's U.S. tariff deadline, a UK PMI reading and U.S. jobs data on Friday.
EUR/GBP jumped 0.3% as shorts were covered.
USD/JPY fell the most in three weeks as a result of sliding Treasury yields, lower oil prices and haven purchases of the yen. This decline disrupts bullish momentum by breaking a pattern of higher lows. If USD/JPY slides below the conversion line at 149.70 and the baseline at 148.92, momentum could shift in favor of bears.
The Q1 Tankan report on Monday is expected to provide insights into Japanese corporate perspectives on U.S. tariffs.
Treasury yields were down 8 to 11 basis points. The 2s-10s curve was down about 2 basis points to +36.3bp.
The S&P 500 slumped 1.93% on weakness in consumer and tech shares. WTI oil fell 0.89% on U.S. growth worries.
Gold rose 0.76%, setting a new record over trade war concerns, while copper was little changed.
Heading toward the close: EUR/USD +0.22%, USD/JPY -0.73%, GBP/USD -0.03%, AUD/USD -0.27%, =USD -0.29%, EUR/JPY -0.54%, GBP/JPY -0.80%, AUD/JPY -1.01%.(Editing by Burton Frierson Reporting by Robert Fullem)
