FOREX-US dollar retreats on 'tariff fatigue'; yen surges on BOJ rate hike bets

Recasts, adds new comment, US data, FX table, byline, NEW YORK dateline; updates prices

By Gertrude Chavez-Dreyfuss and Lucy Raitano

NEW YORK/LONDON, Feb 20 (Reuters) - The U.S. dollar fell against major currencies on Thursday, as investors took a step back and digested President Donald Trump's latest tariff plans, while the yen rose to 11-week peaks as bets mounted 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 that 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 FX market is showing signs of fatigue when it comes to tariff headlines. While Trump's rhetoric on tariffs will be major market drivers, investors are becoming more selective in their reaction to them because of his history of shifting positions," said Boris Kovacevic, global market strategist at Convera in Vienna.

"Trump postponed some of the tariffs, which explains why equities are at record highs in the U.S. and Europe and why the U.S. dollar is down 3% from its January peak."

In late morning trading, the euro rose 0.4% against the dollar to $1.0465 EUR=EBS, while the greenback slid 0.4% versus the Swiss franc to 0.9011 franc CHF=EBS.

The dollar 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 the latest week.

Also marginally weighing on the dollar was a separate report indicating that the Philadelphia Fed's 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 yen, meanwhile, rose to an 11-week peak against the dollar JPY=EBS of 149.63 per dollar. The U.S. currency last traded down 1.2% to 149.68 yen, driven mostly by worries about Trump's tariffs as well as rising expectations for more BOJ hikes this year. 0#JPYIRPR

The euro also dropped against the yen, down 0.8% at 156.68 yen EURJPY=EBS rose 0.74%, on track for its biggest daily drop in two weeks.

BOJ Governor Kazuo Ueda said on Thursday he had met Prime Minister Shigeru Ishiba for a regular exchange of views on the economy and financial markets.

Bank of Singapore currency strategist Moh Siong Sim said he did not think there was just one reason for the yen's surge, but that news Ueda and Ishiba had not discussed rises in long-term interest rates could have reassured markets.

Markets are also monitoring geopolitical developments after Trump on Wednesday called Ukrainian President Volodymyr Zelenskiy "a dictator", deepening a feud between the two leaders that has alarmed European officials.

Comments by Trump that "it's possible" for the U.S. and China to have a new trade deal were also being evaluated by market players. Trump also said on Wednesday he expected Chinese President Xi Jinping to visit the U.S., without saying when.

"Where we are seeing an impact is with the Australian and New Zealand dollar, which have a lot of exposure to Chinese trade," Pfister said.

The Aussie dollar AUD=D3 last traded up 0.8% t US$0.6392, also reacting to a mixed jobs report that showed employment outpaced forecasts for a second successive month in January, yet the unemployment rate still ticked higher.

The New Zealand dollar NZD=D3 also posted sharp gains, rising 0.9% to US$0.5754.

Sterling GBP=D3 was also up, gaining 0.4% to $1.2638.