Dollar on defensive as Trump tariffs fuel economic worries

The dollar struggled on Wednesday to lift off a five-month low against major peers, as worries about the U.S. economy simmered, in view of President Donald Trump's unpredictable trade policies.The euro hovered around a five-month peak on increased optimism for an end to the war in Ukraine.The Canadian dollar was steady after a volatile session on Tuesday, when Trump pledged to double tariffs on steel and aluminium to 50%, only to reverse course just hours later.The Bank of Canada decides policy later on Wednesday, with traders expecting another quarter-point interest rate cut. "Trade uncertainty persists and therefore so does market volatility," said Kyle Rodda, senior financial markets analyst at Capital.com."The U.S. growth outlook continues to deteriorate," Rodda added, pointing to increased attention on the release of the consumer price index (CPI) later in the day, which he warned "could be a significant source of volatility".The U.S. dollar index , which measures the currency against a basket of six major peers, edged up 0.08% to 103.53 in Asian trading hours, following Tuesday's slide of 0.46% that took it as low as 103.21 for the first time since October 16.A run of softer U.S. economic data continued on Tuesday with small-business confidence dropping for a third straight month in February.Investors have been on edge since Trump avoided ruling out the possibility that a recession would result from his trade policies in an interview on Sunday with Fox News.Wednesday's CPI report may be setting the market up for "a lose-lose situation", said Julien Lafargue, chief market strategist at Barclays Private Bank. "A higher-than-expected reading could fuel the stagflation narrative while a weaker-than-expected print could cement recession fears," Lafargue said."What the market really needs at this point is better visibility on growth rather than on inflation."The euro eased 0.13% to $1.0905, but stayed near the previous session's peak of $1.0947, the highest since October 11.On Tuesday, Ukraine said it would accept a U.S. proposal for an immediate 30-day ceasefire in the conflict with Russia.Europe's single currency was already flying high on the promise of massive fiscal spending by Germany, although the situation has become more complex after the Greens vowed to block those plans and unveiled rival proposals.Sterling slipped 0.13% to $1.2931, following Tuesday's rally of 0.53%.The dollar gained 0.14% to 147.99 yen, after sinking to a five-month trough at 146.545 yen in the prior session.The greenback was steady at C$1.4444, after swinging between gains of 0.5% and losses of 0.4% on Tuesday.It added 0.1% to 7.2335 yuan in offshore trading .Cryptocurrency bitcoin edged down 1.4% to $81,661 after bouncing from a four-month trough at $76,666.98 on Tuesday."Risk assets continue to bleed on the back of Trump tariff noise and now his recession chat, (and) digital assets are not immune," said Geoffrey Kendrick, global head of digital assets research at Standard Chartered Bank.A break below a key technical resistance at $76,500 would open the way for a rapid drop to $69,000, Kendrick said, although he kept his forecast for a rally to a record $200,000 by year-end."Stay nimble near-term," he said.