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Dollar index touches fresh two-week low

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Traders expect cautious US approach to tariffs

(Updates to morning U.S. trading)

By Chuck Mikolajczak

NEW YORK, Jan 22 (Reuters) - The dollar was flat on

Wednesday after touching a new two-week low, as investors

continue to await concrete announcements for U.S. President

Donald Trump's tariff plans.

Trump said late on Tuesday his administration was weighing

imposing a 10% tariff on goods imported from China on Feb. 1,

after he earlier said Mexico and Canada could face levies of

around 25% by Feb. 1.

He also promised duties on European imports, without

providing further details.

After hitting a more than two-year high of 110.17 last week,

largely on anticipation of tariffs, the greenback has shown

signs of an overcrowded trade reversing on the lack of firm

plans from Trump, down about 1.2% on the week and in five of the

previous seven sessions.

"We were due for some sort of correction and the fact that

we didn't get any big bang on tariffs day one, kind of sparked

that profit taking," said Brad Bechtel, global head of FX at

Jefferies in New York.

"The market didn't have a huge amount of tariff premium

built in, it had a little bit and that's what's been taken out

of the market now, but a lot of the move is really been more Fed

expectations and interest rate differentials."

ECB DECISION

The dollar index, which measures the greenback

against a basket of currencies, rose 0.01% to 108.15, after it

early dipped to 107.75, its lowest since Jan. 6.

The euro was down 0.1% at $1.042. Multiple European

Central Bank policymakers backed further rate cuts in comments

on Wednesday, indicating a reduction next week is virtually

locked in and further moves lower are likely to come even if the

U.S. Federal Reserve takes a more deliberate approach.

Markets are pricing in a roughly 93% chance for a cut of at

least 25 basis points from the ECB at its policy meeting next

week.

Trump on Monday signed a broad trade memorandum, ordering

federal agencies to complete comprehensive reviews of a range of

trade issues by April 1, which many market participants believe

will be a key date in revealing tariff plans.

Against the Japanese yen, the dollar strengthened

0.42% to 156.16. Markets are pricing in an 88% chance of a rate

hike for at least 25 basis points at the Bank of Japan's meeting

on Friday.

Sterling weakened 0.23% to $1.2326. The Office for

National Statistics said Britain ran a bigger-than-expected

budget deficit in December, swelled by debt interest costs and a

one-off purchase of military homes, highlighting fiscal pressure

for finance minister Rachel Reeves.

The Canadian dollar was down 0.44% versus the

greenback to C$1.44 per dollar, following a volatile week that

saw it tumble as low as 1.4515 for the first time since March

2020 as data showing cooling inflation last month added

pressure.

Analysts at Deutsche Bank said they see the Canadian dollar

to greenback as "one of the most under-priced FX crosses for an

FX trade war."

The Mexican peso strengthened 0.42% versus the dollar

at 20.547.

China's yuan weakened 0.12% against the greenback to

7.278 per dollar in offshore trading, after pushing to the

strongest level since Dec. 11 on Tuesday.