The dollar struggled to recover from a five-month low against major currencies on Wednesday, as traders digested U.S.-EU retaliatory tariffs and a potential Russia-Ukraine truce, while awaiting U.S. inflation data amid concerns about the economy.

President Donald Trump's unpredictable trade policy announcements have rattled markets and prompted retaliatory tariffs from trading partners, escalating a global trade war.

The European Union will impose retaliatory tariffs on 26 billion euros ($28.39 billion) worth of U.S. goods starting in April, the European Commission said on Wednesday, in response to U.S. tariffs on steel and aluminum that came into effect the previous day.

"There are so many, so many moving parts," said Kenneth Broux, head of FX and rates research at Societe Generale. "We don't see any safe havens in European assets this morning because of the trade war retaliation," Broux added.

The euro weakened after hitting a five-month peak of $1.0947 on Tuesday as Ukraine said it was ready to support Washington's proposal for a 30-day ceasefire with Russia. The ball is now in Moscow's court.

The Kremlin said on Wednesday it was waiting for details from the U.S., while senior Moscow sources said a deal must take into account Russia's progress and address its concerns.

The euro was trading 0.15% lower at $1.0902 in midday European trade.

The single European currency has been buoyed by Germany's pledge to spend big, although the situation has become more complicated after the Greens vowed to block the plan and unveiled a rival proposal.

SOURCES OF VOLATILITY

The Canadian dollar steadied after a volatile session on Tuesday, when Trump vowed to double steel and aluminum tariffs to 50%, only to reverse course hours later.

The Bank of Canada decides policy on Wednesday, with traders expecting another quarter-point rate cut.

The greenback weakened to C$1.4415.

Canada will announce C$29.8 billion in retaliatory tariffs against the United States on Wednesday, a Canadian official said, declining to be identified.

"Trade uncertainty continues to persist and 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 consumer price index (CPI) release later in the day, which he warned "could be a source of significant volatility." (Newsmaker23)

Source: Reuters