Dollar holds firm, euro drifts as global trade tensions escalate
The U.S. dollar was broadly firmer on Friday with the euro pulling further away from a five-month peak as markets grappled with escalating global trade tensions and risks of a sharp economic downturn.
Sowing more volatility across markets, U.S. President Donald Trump threatened to hit Europe with a 200% tariff on wine, cognac and other alcohol imports.
The escalating tensions between the traditional allies came after the EU bloc announced plans to impose levies on American whiskey and other products next month, which itself was a response to Trump's 25% tariffs on steel and aluminium imports that took effect earlier this week.
The intensifying global trade skirmish has fuelled uncertainty and fears about a potentially sharp economic slowdown, with the S&P 500 tumbling into correction territory on Thursday as investors piled into U.S. Treasuries and other safe haven assets.
The euro edged down to $1.0847 after sliding further off Tuesday's five-month peak the previous day as the EU-U.S. trade spat rattled markets and Germany struggled to pass a massive spending proposal.
Hopes of an imminent ceasefire between Ukraine and Russia were also fading as Moscow said it supported the U.S. proposal but suggested it would need some serious reworking.
The softer euro helped lift the greenback further away from Tuesday's trough of 103.21, its lowest since mid-October, though concerns simmered about the outlook for the U.S. and broader global economy.
"I think the million-dollar question with whatever asset class you're looking at is...where do we start to find the news that's going to turn around risk sentiment? And at this point in time, it's not clear," said Tony Sycamore, a market analyst at IG.
Since climbing to a six-month peak back in January, the dollar has fallen more than 5%, giving up major ground against the euro, sterling, and yen as the U.S. exceptionalism narrative started to fray.
A potential U.S. government shutdown added to uncertainties, although top U.S. Senate Democrat Chuck Schumer on Thursday said he would vote to advance a Republican stopgap funding bill, signalling that his party would provide the votes to avert a shutdown.
Elsewhere, the pound drifted around $1.2945 ahead of the release of gross domestic product figures for January, after falling in the previous session from Wednesday's high of $1.2990, its highest against the dollar since early November.
WAGE RESULTS AWAITED
The yen walked back some of its gains on Friday, with the dollar trading at 148.32 yen, up 0.35%.
The Japanese currency strengthened to as high as 146.545 per dollar earlier this week, buoyed by safe-haven bids and bets that the Bank of Japan (BOJ) will raise interest rates again later this year.
Market players had their eyes on first round results of spring wage negotiations expected sometime later in the day which are expected to encourage the BOJ to continue normalizing monetary policy.
Economists and markets see the central bank standing pat at its meeting next week as policymakers gauge global risks.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.1% to 103.95 after two straight days of gains.
The Canadian dollar wallowed at 1.4440 per U.S. dollar, with Canada caught in the tariff crossfire.
The risk-sensitive Australian dollar steadied at $0.6284 after slipping on Thursday, while the New Zealand dollar was up 0.1% at $0.5702.
In cryptocurrencies, bitcoin was up 1.32% at $81,410.36.
