Trump is replacing his top diplomat Rex Tillerson ahead of talks with North Korea

London (AFP) - The US dollar dipped Tuesday against European currencies after US inflation data pointed to a moderate pace of coming interest rate rises, with fresh White House turmoil adding pressure on the greenback, dealers said.

Wall Street stocks initially pushed higher after the US consumer price index (CPI) rose 0.2 percent in February, just as analysts had predicted, cooling from January’s jump of 0.5 percent which had sent markets around the world into a tailspin.

The inflation report “exactly matched expectations, and partially reverses some of the inflation concerns caused by last month’s employment and CPI report,” said Marvin Loh, a markets strategist at BNY Mellon Markets.

The Federal Reserve is expected to raise its benchmark interest rates next week in the first of at least three hikes expected this year – and market watchers had been looking for data that could justify the central bank acting more aggressively.

But the inflation data “paints a picture of slightly softer demand in the US”, said market analyst David Madden at CMC Markets, which would reduce the need to raise interest rates sharply.

The US inflation data came after a strong jobs report on Friday and US President Donald Trump’s decision to meet North Korean leader Kim Jong Un, both of which had helped fuel a surge in global equities at the end of last week.

The dollar was also hit by Trump’s announcement that he was replacing his top diplomat Rex Tillerson ahead of announced talks with North Korea.

“Both the dollar and the Dow Jones seemed a tad shaken by the firing of Tillerson, the latest in a string of high profile departures from the White House,” said analyst Connor Campbell at Spreadex.

Early gains by Wall Street stocks faded away in morning trading, with the Dow down 0.2 percent in midday trading.

The shakeup also did little to reassure European investors who have been watching anxiously as Trump and EU officials wage a rapidly escalating war of words over tariffs.

- European currencies strong -

In European economic powerhouse Germany, the DAX stock market tumbled 1.6 percent as the euro strengthened, weighing on exporters who are also in the crosshairs of Trump’s trade barbs.

The London stock market also fell back, closing the day down 1.1 percent as the pound strengthened even as finance minister Philip Hammond said the British economy would grow slightly more than expected this year.

Earlier, Asian markets mostly closed higher, but investors moved cautiously as a recent global rally lost steam as trade tensions returned.

Asian markets swung in and out of positive territory and by the end Tokyo was up 0.7 percent.

Hong Kong ended marginally higher while Shanghai finished 0.5 percent lower.

- Key figures around 1630 GMT -

New York - Dow: DOWN 0.2 percent at 25,129.77 points

London - FTSE 100: DOWN 1.1 percent at 7,138.78 (close)

Frankfurt - DAX 30: DOWN 1.6 percent at 12,221.03 (close)

Paris - CAC 40: DOWN 0.6 percent at 5,242.79 (close)

EURO STOXX 50: DOWN 1.1 percent at 3,391.14

Tokyo - Nikkei 225: DOWN 0.7 percent at 21,968.10 (close)

Hong Kong - Hang Seng: FLAT at 31,601.45 (close)

Euro/dollar: UP at $1.2394 from $1.2335 at 2040 GMT

Pound/dollar: UP at $1.3978 from $1.3905

Dollar/yen: UP at 106.59 yen from 106.40 yen

Oil - Brent North Sea: DOWN 33 cents at $64.62 per barrel

Oil - West Texas Intermediate: DOWN 74 cents at $60.62