Asian share markets turned mixed on Wednesday as investor nerves were strained ahead of a US inflation report that could soothe, or inflame, fears of faster rate hikes globally.
Japanese demand for yen also saw the dollar break last year's low and skid to a 15-month trough at 107.01, dragging the US currency down broadly.
That in turn pressured Japan's Nikkei which slipped 0.6 per cent to test four-month lows. Dealers said there was a lot of focus on the 200-day moving average at 21,031 as a break there would ring bearish alarm bells.
Other Asian markets were steadier, as were E-Minis for the S&P 500. MSCI's broadest index of Asia-Pacific shares outside Japan added 0.4 per cent.
Moves were tentative with investors clearly scarred by the return of volatility.
BofA Merrill Lynch's February Fund Manager Survey found a record one-month jump in the net percentage of investors taking out protection against a sharp fall in equity markets.
Funds were rotating into cash and out of equities, reducing their stock allocation to a net 43 per cent overweight, from 55 per cent, the largest one-month decline in two years.
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Much now rested on what the US consumer price report showed for January, given it was the risk of accelerating inflation that triggered the global rout in the first place.
Headline consumer price inflation is forecast to slow to an annual 1.9 per cent and core inflation to 1.7 per cent, an outcome that could help calm nerves. The concern is the figures could surprise on the high side as wages did a couple of weeks ago.
"The risk seems asymmetric to me," said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
"Even a slightly higher number could set the cat among the pigeons given the late cycle stimulus the Trump Administration is pumping into the US economy."
In currency markets, the US dollar was under fire again losing 0.28 per cent on a basket of currencies to 89.453.
The euro firmed to $1.2363 and away from last week's trough at $1.2204. It was aided by expectations German GDP data later on Wednesday would show strong growth.
Analysts said investors were becoming nervous about the prospect of swelling US budget and trade deficits given the passage of huge tax cuts and spending plans.
"The re-emergence of the twin deficit should send shivers down the dollar's spine," said Mark McCormick, North American head of FX strategy at TD Securities.
He noted the IMF had estimated that a 1 per cent rise in the budget deficit led to a 0.6 per cent increase in the US current account deficit. That suggested the twin deficit could exceed 7 per cent of GDP by the end of the decade, all of which had to be funded by offshore money.
"Those numbers do not bode well for the greenback in the medium term," concluded Mr McCormick.
The drop in the dollar gave a fillip to commodities, with copper firm after jumping 2.7 per cent overnight.
Spot gold edged up 0.4 per cent to $1,335.01 per ounce, leaving behind last week's one-month low of $1,306.81.
Oil prices steadied for now, though concerns about oversupply were never far away.
US crude futures eased 1 cent to $59.18 a barrel, while Brent futures gained 9 cents to $62.81.
