BUZZ-COMMENT-USD on shaky ground as stagflation fears take hold

Feb 26 (Reuters) - The U.S. dollar is at risk of extending its decline as stagflation fears rise. The U.S. economy is slowing and mounting policy uncertainties will compel the Federal Reserve to maintain its steady-for-longer rate stance.

Recent surveys have shown steep declines in business and consumer sentiment in February and Tuesday's news of consumer confidence plunging to an eight-month low raised questions about the mood of the consumer, who contributes about 70% of U.S. GDP.

The potential negative economic impact of the Trump administration's policies and unprecedented layoffs of federal government workers appear to be sapping consumer morale and could deter spending.

Rising inflation expectations as households brace for the impact of trade tariffs, still sticky price pressures and the uncertainty caused by Trump's trade, immigration, and other policy changes, will force the Fed to maintain a cautious stance on further rate cuts.

With the conditions for stagflation materialising, the days of U.S. economic outperformance could be fading, diminishing demand for the USD as a safe haven.

Falling U.S. yields as the government focuses on lowering benchmark 10-year Treasury interest rates are likely to weigh on the USD, along with rising long-term rates in Japan and optimism for more spending in Germany.

The USD index =USD has sustained Thursday's break below the 100-day moving average and is likely to test 105.41, the December low. An extension to 105.16, the 50% retracement of the September-January USD rally and 105.00 cannot be ruled out.

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