By Chibuike Oguh and Yadarisa Shabong

NEW YORK (Reuters) -The U.S. dollar edged higher against major currencies including the yen and the euro on Wednesday as data showed a slowdown in inflation although simmering trade tensions will continue to weigh on markets.

A trade brinkmanship between the U.S. and its trading partners, spurred by President Donald Trump’s unpredictable announcements on tariffs, has spread uncertainty among investors.

In the latest episode, Trump vowed to respond to the European Union’s threat to impose counter tariffs on 26 billion euros ($28 billion) worth of U.S. goods from next month after Trump implemented blanket tariffs on steel and aluminium imports.

Earlier on Wednesday, Labor Department data showed a less-than-expected increase in U.S. consumer prices to 0.2% last month, compared with the average forecast of 0.3%, based on economists polled by Reuters.

“Obviously the overarching theme has been around the trade war and the back-and-forth on tariffs not just with the North America partners but also with the other countries in Europe in particular and China,” said Amarjit Sahota, executive director at Klarity FX in San Francisco.

“We were also going to get an inflation update, which we did, and inflation is still pretty sticky and it came lighter than expected. I think it was a little bit of a relief for the marketplace, so it improved sentiment. But sentiment is on a very short leash and it can change so quickly based on the headline risks.”

The dollar strengthened 0.37% to 148.31 yen against the Japanese yen. Against the Swiss franc, the dollar weakened 0.06% to 0.882 after giving up gains in early trade. The greenback is trading down against both currencies so far this month.

The euro eased 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 Kremlin said on Wednesday it was waiting for details from the U.S.

Europe’s single currency has been flying high on the promise of massive fiscal spending by Germany, although the situation has become more complex after the Greens party vowed to block those plans and unveiled rival proposals.

The euro was trading down 0.26% at $1.0889. The currency has gained nearly 5% against the U.S. dollar so far in March.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro,rose 0.14% to 103.59. It is on track to snap seven straight sessions of losses.

“There are so many, so many moving parts,” said Kenneth Broux, head of corporate research FX and rates at Societe Generale.

“We’re not seeing any safe haven in European assets this morning because of retaliation of the trade war,” Broux added.

The Bank of Canada trimmed its key policy rate by 25 basis points to 2.75% and warned of “a new crisis” as it tried to prepare the country’s economy for the damage that Trump’s tariffs could wreak.

Trump walked back on a pledge to double tariffs on steel and aluminum from Canada to 50%, just hours after announcing the higher tariffs on Tuesday. The switch came after a Canadian official also backed off his own plans for a 25% surcharge on electricity.

The U.S. dollar weakened against the Canadian dollar, trading down 0.44% to C$1.4370per dollar. It is down 0.66% against the loonie in March.

The British Sterling eased after hitting a four-month high of $1.29900 on the session. It was up 0.16% to $1.29680. [GBP/]

“There was a brief moment of a relief because CPI came in lower than expected and that created some currency volatility, but I think the dollar direction is beginning to get a little worn out because of bigger trends and there’s so much headline risk with Ukraine-Russia war or tariffs,” said John Velis, Americas macro strategist at BNY.

(Reporting by Yadarisa Shabong in Bengaluru and Kevin Buckland in Tokyo; Editing by Kim Coghill, Kirsten Donovan and Nick Zieminski)