By Ankur Banerjee
SINGAPORE (Reuters) -The euro bounced off a three-week low touched earlier on Thursday after U.S. President Donald Trump slapped a 25% tariff on imported cars and light trucks starting next week, even as the prospect of an all-out trade war dimmed risk sentiment.
The currency market reaction to the duties was largely muted, with most of the action centred around share prices of automakers.
The euro 0.3% higher at $1.078625 after touching a three-week low of $1.0733 in early trading. The yen was a shade stronger at 150.17 per dollar.
The Mexican peso weakened 0.5% to 20.2054 per U.S. dollar in Asian hours. The Canadian dollar was flat at weaker at 1.4261 per U.S. dollar.
The U.S. imported $474 billion of automotive products in 2024, including passenger cars worth $220 billion. Mexico, Japan, South Korea, Canada and Germany, all close U.S. allies, were the biggest suppliers.
“This potentially drags out trade uncertainty even longer and raises the question of how radical a change to the global trade order is Trump trying to bring about,” said Kyle Rodda, senior financial market analyst at Capital.com
The dollar index, which measures the U.S. currency against six rivals, was at 104.29, down 0.33% on the day. The index touched a three-week high in the previous session.
Vasu Menon, managing director of investment strategy at OCBC, said the latest actions will probably make cars more expensive for U.S. consumers already worried about inflation and could amplify recession worries.
“Retaliation from countries that have been affected by the latest auto tariffs could worsen the situation for US consumers and automakers and fuel further concerns about inflation and the outlook for the US economy,” he said.
Investor focus will now be on the reciprocal tariffs due to be announced next week. Trump indicated the measures may not be the like-for-like levies he has been pledging to impose.
Investors worry that the trade duties will dent U.S. growth and potentially reignite inflation, although the prospect of narrower-than-feared tariffs has buoyed sentiment recently.
St. Louis Federal Reserve President Alberto Musalem said on Wednesday it’s possible inflation will be higher and growth lower than expected and there is no urgency for the Fed to cut interest rates.
The Australian dollar was 0.21% higher at $0.6311, while the New Zealand dollar rose 0.23% to $0.5742.
Sterling strengthened 0.26% to $1.2919, recovering from the previous session’s 0.45% fall as traders weighed the spring statement from finance minister Rachel Reeves.
Reeves trimmed her spending plans in a budget update on Wednesday that gave some reassurance to investors.
Data on Wednesday also showed UK inflation cooled to an annual rate of 2.8% in February from 3.0% in January. That was below analysts’ expectations of 2.9%, although analysts warned energy prices and tax increases would push the rate back up towards 4% this year.
(Reporting by Ankur Banerjee in Singapore; Editing by Jamie Freed and Sonali Paul)
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