The US dollar held steady on Friday but remained on track for modest weekly gains against major currencies, as investors awaited delayed US inflation data that is unlikely to deter the Federal Reserve from cutting interest rates next week.

Trade war concerns resurfaced after President Donald Trump announced that all trade talks with Canada had been canceled, following what he called a fraudulent broadcast from Ontario featuring former President Ronald Reagan speaking negatively about tariffs.

The Canadian dollar dipped slightly to 1.4008 per US dollar, though the market reaction was relatively muted, with investor focus turning to next weeks anticipated meeting between Trump and Chinese President Xi Jinping.

Hopes for progress in TrumpXi talks

The meeting, set to take place in South Korea, has raised hopes for a breakthrough in the intermittent trade conflict between the worlds two largest economies.

Ben Bennett, Head of Investment Strategy for Asia at LG Asset Management, said: Expectations are running high for the TrumpXi meeting, with the potential upside being a significant easing of tensions after direct talks.

He added that markets have become accustomed to a pattern of fiery rhetoric followed by major deals, expressing optimism that this meeting could follow that trend. Bennett noted that the tensions with Canada may be part of a broader negotiation strategy.

US inflation data in focus

Investors are awaiting the release of Septembers Consumer Price Index later on Friday, despite the ongoing government shutdown, now entering its third week.

Economists polled by Reuters expect the headline CPI to rise 0.4% month-on-month, while the core index excluding food and energy is projected to increase 0.3%.

Although analysts do not expect the data to change the Feds course toward a 25-basis-point rate cut next week, the figures may provide clues for the December policy meeting.

Markets are fully pricing in next weeks rate cut, alongside expectations for another reduction in December.

Dominic Banning, Head of G10 FX Strategy at Nomura, said: This data release carries extra weight because markets havent had fresh official numbers for a while, so investors will pay more attention than usual.

Currency movements

The euro was steady at $1.1614, on track for a 0.3% weekly decline, despite stronger-than-expected business activity in the eurozone in October, driven by the services sector, according to a survey released Friday.

The British pound slipped 0.1% to $1.3311, despite stronger-than-expected retail sales data, supported in part by increased demand for gold at online jewelry retailers.

The US Dollar Index, which measures the currency against six major peers, rose 0.5% for the week, last trading near 98.99 up less than 0.1% on the day.

Markets digest new sanctions

Fresh US sanctions on Russian oil giants Rosneft and Lukoil sent oil prices sharply higher, following similar measures imposed by the UK last week in response to the ongoing war in Ukraine.

The oil rally weighed on energy-importing currencies, particularly the Japanese yen, which has also been pressured by the expansionary fiscal and monetary stance of new Prime Minister Sanae Takaichi.

The yen weakened to a two-week low of 152.85 per dollar after data showed Japans core consumer prices remained above the Bank of Japans 2% target, maintaining expectations for a possible rate hike in the coming months.

Reuters reported that Takaichi is preparing an economic stimulus package exceeding $92 billion to help households cope with inflation, a move that could limit the BOJs ability to raise rates next week. Futures markets currently assign only a 19% probability of a rate increase.

Banning of Nomura noted: We face the risk of combining loose fiscal policy with relatively accommodative monetary policy, which could weigh on the yen in the long run.

He added: At this point, its difficult to build a strong case for a significant positive turnaround in the yens outlook.