The dollar was higher in early trading in Europe on Wednesday, supported by comments from senior Federal Reserve officials playing down the likelihood of interest rate cuts, and by a fresh bout of safe-haven buying on geopolitical tensions.

At 03:00 AM ET (0700 GMT), the dollar index, which measures the greenback against a basket of six major currencies, was at 97.36, up nearly half a percent from Monday’s lows and up 0.1% from late on Tuesday.

The dollar was strongest against the Aussie and kiwi after data published in China showed industrial production and retail sales falling short of expectations in April - even before the imposition of new tariffs on its exports to the U.S.

Chinese stocks however rallied on Wednesday, apparently in anticipation of further stimulus from the Chinese central bank.

President Donald Trump on Tuesday called on the Federal Reserve to “match” any stimulus provided by China to offset the economic damage from his new tariffs.

However, Kansas City Fed President Esther George warned in a speech that “Lower interest rates might fuel asset price bubbles, create financial imbalances, and ultimately a recession,” and put the responsibility for any risk to the U.S. economy on “trade policy uncertainty and slower growth abroad, particularly in China, the euro area, and the United Kingdom.”

In a separate appearance, New York Fed President John Williams (NYSE:WMB) warned that tariffs would tend to push up inflation.

“As tariffs get larger, assuming that happens, the effects will be bigger, boosting inflation in the next year and probably having negative effects on growth," Williams told Bloomberg.

The euro was drifting after news that the German economy grew by 0.4% in the first quarter, a figure that has already been overshadowed by weak business surveys in April and May. A second reading of Eurozone GDP is due later Wednesday.

The British pound has lost ground after yesterday’s data showing average earnings growth slowed slightly in March. It’s also still under pressure after Labour Party Deputy Leader John McDonnell warned that cross-party talks on a deal to approve Brexit are close to collapse. Prime Minister Theresa May indicated on Tuesday that she is aiming for a fourth parliamentary vote on her withdrawal agreement sometime in June.

Forex - Dollar Rises as Fed Officials Push Back Against Call to Cut

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