NEW YORK/MILAN, April 1 (Reuters) - The yen rose and the dollar index fell on Tuesday as investors digested the latest round of U.S. economic data ahead of tariff announcements from the Trump administration due Wednesday.
U.S. manufacturing contracted in March after two consecutive months of expansion, while a measure of inflation at the factory gate was the highest in nearly three years. This comes as concerns mount about how much tariffs will hike prices for consumers and businesses.
A labor report also showed job openings fell to 7.568 million in February.
"Today's numbers provide more evidence of the stagflationary forces building within the American economy, threatening to put the Federal Reserve in a straitjacket amid one of the biggest economic policy disruptions in generations," said Karl Schamotta, chief market strategist, Corpay.
"With orders slumping, production slowing, and employment contracting even as price growth accelerates at the fastest pace since the post-pandemic rebound, it is clear that the manufacturing sector is already bearing the brunt of President Trump's protectionist policy changes - and that the rest of the economy could suffer the downstream consequences in the months ahead."
Investors see the Japanese currency as a safer asset than the dollar in the current environment, as U.S. tariffs would likely hurt the U.S. economy as well.
Markets have mostly consolidated to the previous day's ranges.
The greenback dropped 0.45% to 149.3 versus the yen , while the euro fell 0.5% to 161.37.
Readings for jobless claims and non-farm payrolls later in the week, could give markets further insights into how uncertainty in U.S. trade policy is hurting its economy.
The dollar index , which measures the U.S. currency against six rivals, was 0.09% lower at 104.09.
"I think that the market's just really waiting for tomorrow's tariff announcement," said Marc Chandler, chief market strategist, Bannockburn Global Forex. "We know that the tariffs are going to elevate prices. The question really is, I think, the magnitude and the duration. Many people think that the magnitude might be a spike, but the duration might not be that long."
Trump announced late on Sunday that all countries would face new tariffs this week, though he provided no specific details. He had previously talked about 25% tariffs against European goods.
White House aides have drafted a proposal to impose tariffs of around 20% on most imports to the United States, the Washington Post reported on Tuesday.
European Commission President Ursula von der Leyen said the EU was open to negotiations with the U.S. on trade, but would retaliate strongly if necessary.
The euro dropped 0.1% to $1.0807 after gaining 4.5% in the first quarter of the year, its strongest quarterly performance since October-December 2022, thanks mainly to Germany's commitment to sharply increase fiscal spending.
Geopolitical tensions remain in focus as the Chinese military said it had conducted drills in waters to the north, south and east of Taiwan on Tuesday.
Investors have also boosted their bets on future European Central Bank rate cuts due to tariff fears and weak economic data, driving bond yields and the single currency lower.
In other currencies, the Australian dollar was last up 0.5% at US$0.6277 after the central bank left rates unchanged as expected. It hit 0.6217 on Monday, its lowest since March 4.
Additional reporting by Stefano Rebaudo in Milan; Editing by Aidan Lewis, Jan Harvey and Nick Zieminski
