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Dollar up against yen, Swiss franc

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Investors digest implications of escalating trade war

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Uncertainty over Trump's policies complicates outlook for

central banks

By Rae Wee

SINGAPORE, March 13 (Reuters) - The dollar rebounded

slightly on Thursday thanks to a rise in U.S. Treasury yields,

though currencies traded in tight ranges as investors struggled

to determine the impact of an escalating global trade war on

U.S. inflation and growth.

U.S. President Donald Trump on Wednesday threatened further

tariffs on European Union goods, as major U.S. trading partners

said they would retaliate for trade barriers already erected by

him.

A rise in global trade tensions and worries over U.S.

recession risks have rattled global markets and sparked huge

volatility in the foreign exchange market, as traders seesaw

between relief and angst over Trump's whipsawing policy changes.

Markets were a tad calmer in the early Asian session on

Thursday as investors got a break from the flurry of headlines

about U.S. trade policy.

The dollar rose 0.05% against the yen to 148.31,

recovering some of its losses from earlier in the week when it

fell to a five-month low against the Japanese currency, as fears

of an economic downturn in the U.S. sparked a rush to the

Japanese currency as a safe haven.

The Swiss franc similarly edged away from Monday's

three-month peak and last stood at 0.8817 per dollar.

Data released on Wednesday showed U.S. inflation rose

slightly less than expected in February, but the relief it

offered could be temporary as the data did not fully capture the

cascade of Trump's tariffs.

"What is more uncertain is the outlook for future inflation

and the state of U.S. economic activity, thanks largely to the

unpredictability of U.S. trade policy," said James Reilly,

senior markets economist at Capital Economics.

"It is these issues driving markets, and (the) report gave

little fresh insight into either of those."

But U.S. Treasury yields pushed higher as traders wagered on

a pick-up in inflation down the line, with the benchmark 10-year

yield last steady near a one-week top at 4.3047%.

The two-year yield was little changed at 3.9866%.

That kept the dollar supported and knocked the euro

away from Tuesday's five-month top, with the single

currency last fetching $1.0890.

Sterling ticked up 0.06% to $1.2968, while the

dollar index edged away from Tuesday's five-month low and

firmed at 103.57.

The Canadian dollar was little changed at C$1.4372.

The Bank of Canada on Wednesday trimmed its key policy rate

by 25 basis points and raised concerns about inflationary

pressures and weaker growth stemming from trade uncertainty and

Trump's tariffs.

"Tariffs pose inflation pressures to the world economy,

which would be a nightmare for central banks... central bankers

are just being more cautious and keeping an open mind to what's

to come," said Carol Kong, a currency strategist at Commonwealth

Bank of Australia.

"Even though central banks can cut interest rates to offset

the negative impact on growth, inflation concerns might

ultimately limit what they can do on the monetary policy front."

Elsewhere, the Australian dollar rose 0.07% to

$0.6326, while the New Zealand dollar edged 0.13%

higher to $0.5738.