FOREX-US dollar rises on higher PPI and US-Iran tensions

By Karen Brettell

NEW YORK, Feb 27 (Reuters) - The U.S. dollar rose on Friday after hotter-than-expected producer price data for January and on concerns about rising tensions between the United States and Iran.

The Producer Price Index for final demand rose 0.5% last month after advancing by a downwardly revised 0.4% in December. Economists polled by Reuters had forecast the PPI gaining 0.3% after a previously reported 0.5% increase in December.

“There's a real deep unease in markets about inflation and growth so far in 2026,” said Adam Button, chief currency analyst at investingLive. “There's this expectation that inflation will moderate, but it's not showing up in the numbers.”

Underneath the headline number, however, there were signs of improvement, said Chris Low, chief economist at FHN Financial.

“While the PPI headline increase was alarmingly big, pressure came from trade services, a category the BLS notes is calculated in a way that does not capture true price changes in real time,” Low said in a report. “Otherwise, there is evidence of price moderation.”

DOLLAR TRACKS FIRST MONTHLY GAIN SINCE OCTOBER

The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.06% to 97.79, with the euro EUR= flat on the day at $1.1797.

The dollar index is headed for a 0.64% monthly gain, its first monthly increase since October. The euro is on track for a 0.42% loss, its first down month since October.

Against the Japanese yen JPY=, the dollar strengthened 0.03% to 156.16. The U.S. currency is headed for a 0.9% gain against the yen this month.

The U.S. Federal Reserve is expected to keep rates on hold until at least June due to concerns about still elevated inflation.

But traders are pricing in 60 basis points of cuts by year-end on concerns about a weakening labor market.

The dollar was boosted earlier by a safety bid on concerns about a conflict between the U.S. and Iran.

The two countries made progress in talks over Tehran's nuclear program on Thursday, mediator Oman said, but hours of negotiation ended with no sign of a breakthrough that could avert potential U.S. strikes amid a massive military buildup.

Oil prices rose about 3% on Friday as traders remained on alert for potential supply disruptions if relations worsen.

Overall market moves this week have been muted as traders gauge the geopolitical uncertainty along with the impact of new tariffs, after the U.S. Supreme Court last week struck down U.S. President Donald Trump’s emergency tariffs.

"The dollar has been trading in a little bit of a holding pattern. It feels like it's waiting for its next real catalyst," said City Index market strategist Fiona Cincotta.

The yuan took a breather from a 10-day rally after the People's Bank of China moved to slow the pace of the rise. It said it would scrap the foreign exchange risk reserves for some forward contracts - seen as a way to encourage dollar buying.

Sterling GBP= fell 0.22% to $1.3451, and was set to snap three straight months of gains with a 1.75% fall in February.

A local election in Manchester on Thursday delivered a big victory to the Green Party and a blow to Prime Minister Keir Starmer's Labour, whose popularity has slid sharply in the past year.

Sterling is sensitive to domestic politics, but with risk events ahead, such as next week's budget update from finance minister Rachel Reeves, any volatility was contained.

In cryptocurrencies, bitcoin BTC= fell 2.30% to $65,924.