NEW YORK (Reuters) - The greenback on Thursday strengthened against the Canadian dollar and the Mexican peso following news the United States will impose tariffs on aluminum and steel imports from both neighboring countries, as well as from the European Union.
The announcement ends months of uncertainty about potential exemptions and reignited fears of a global trade war.
“On balance adjusted trade measures are usually... negative for the USD because it is seen as lying on a continuum with a preference for a weaker currency,” said Daniel Katzive, head of FX strategy North America at BNP Paribas in New York.
“But it can also have an impact on the risk environment and the economic outlook in other countries, which makes things complicated.”
Against the Canadian dollar, the greenback strengthened by as much as 0.9 percent to a session high of 1.299, retracing most of the gains made by the loonie Wednesday on the back of a hawkish Bank of Canada statement.
The psychologically significant barrier of 20 pesos to the U.S. dollar was broken following the tariff news, before the exchange rate settled just under that level, last at 19.954.
Not all investors were certain the gains would persist. At the very least, “I do think that if negative news about non-farm payrolls comes out, we’re going to see dollar losses,” said Michael Diaz, head of foreign exchange at XE in Buena Park, California in reference to the Bureau of Labor Statistics jobs report that will be released on Friday morning.
The euro remained resilient against the dollar, in spite of the trade announcement, maintaining levels set earlier in the day on the news that Italy’s anti-establishment political leaders Matteo Salvini and Luigi Di Maio reached a deal to resurrect their proposed coalition government, averting the prospect of a new snap election which had rattled global markets.
The rise of a potentially euroskeptic government in Italy and the impact that could have on the stability of Europe had driven the euro to 10-month lows against the dollar on Tuesday.
The euro EUR= strengthened against the dollar on Thursday, climbing half a percent to a three-day high of $1.1724, after having risen 1.1 percent the previous day, its second-biggest daily gain this year.
The dollar shed 0.5 percent to 108.37 yen JPY=, edging back toward Tuesday's five-week low of 108.10 yen.
The dollar index, which measures the greenback against a basket of six major currencies .DXY, was down 0.4 percent to a session low of 93.717.
Reporting by Kate Duguid in New York and Tom Finn in London; Editing by Dan Grebler and Chizu Nomiyama