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US dollar stumbles on 'tariff fatigue'; yen soars as BOJ hike bets rise

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - The U.S. dollar dropped against major currencies on Thursday, as investors took a step back and assessed President Donald Trump's latest tariff plans, while the yen rose to 11-week peaks versus the greenback as bets increased for further rate hikes by the Bank of Japan (BOJ).

U.S. data showing initial jobless claims, which were in line with expectations, and a report indicating factory output growth slowed in the mid-Atlantic region in February had minimal impact on the currency market. The reports have not changed expectations that the Federal Reserve will remain on hold for several months.

Tariffs, however, remained a major focus for currency investors even though their impact has weakened for now.

Trump said on Wednesday he will announce fresh tariffs over the next month or sooner, adding lumber and forest products to previously announced plans to impose duties on imported cars, semiconductors and pharmaceuticals.

"The market has reached tariff-fatigue where it's just not reacting...as it did right after the election in November, December and even in January," said Paresh Upadhyaya, director of fixed income and currency strategy, at Amundi U.S. in Boston.

"It's now operating using the government shutdown playbook, where everyone thinks they have seen this dog-and-pony show before and expects the same thing. There is the threat of tariffs, leading to negotiations and a reprieve and some form of resolution."

In afternoon trading, the euro rose 0.7% against the dollar to $1.0499, rising after three straight days of losses, while the greenback slid 0.7% versus the Swiss franc to 0.8979 franc.

The dollar earlier slipped after data showed initial claims for state unemployment benefits rose 5,000 to a seasonally adjusted 219,000 for the week ended February 15. Economists polled by Reuters had forecast 215,000 claims for that week.

Also marginally weighing on the dollar was a separate report indicating the Philadelphia Fed's monthly manufacturing index tumbled by 26.2 points - the most in nearly five years - to 18.1 in February from 44.3 in January.

"The U.S. economic momentum is slowing...and not providing a supportive backdrop to the dollar," said Boris Kovacevic, global macro strategist at payments firm Convera in Vienna. "The Fed's hawkish monetary policy...can only do so much to help the greenback and the pause is already fully priced in."

The yen, meanwhile, rose to an 11-week peak of 149.40 per dollar. The U.S. currency last traded down 1.1% at 149.77 yen, driven mostly by safe-haven buying amid worries about Trump's tariffs and rising expectations of more BOJ hikes this year.