SINGAPORE (March 27): The euro was steady, rising off a three-week low earlier on Thursday, with US President Donald Trump's 25% tariff on imported cars and light trucks due to take effect next week, widening a global trade dispute.

The currency market reaction to the duties was largely muted, with most of the action centred around share prices of automakers. Traders were uncertain about whether the news was more negative for the dollar or for US trading partners.

The euro was 0.1% higher at US$1.0765 after touching a three-week low of US$1.0733 in early trading. The yen was a shade weaker at 150.865 per dollar.

The Mexican peso weakened to 20.1636 per US dollar. The Canadian dollar was softer at 1.42895 per US dollar.

The US imported US$474 billion of automotive products in 2024, including passenger cars worth US$220 billion. Mexico, Japan, South Korea, Canada and Germany, all close US allies, were the biggest suppliers.

The dollar index, which measures the US currency against six rivals, was at 104.49, down 0.15% on the day. The index touched a three-week high in the previous session.

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 US growth and stoke inflation, although the prospect of narrower-than-feared tariffs has buoyed sentiment recently.

The European Union's top trade negotiator Maroš Šefcovic expects Trump to hit the bloc with tariffs of about 20% next week, the Financial Times reported on Wednesday.

"We hear these kinds of stories, the immediate reaction from markets is dollar negative impacts on US growth fears, but being very cautious to price in the dollar positive impact that we would ultimately expect with tariffs," said Nick Rees, head of macroeconomic research at Monex Europe.

"Next couple of days, if we do see these tariffs and they do proof sticky, and we think they will do, it should be euro/dollar downside," Rees said.

Somewhere around US$1.03 per euro over the next few weeks "would not be unreasonable" for the currency pair, he added.

Vasu Menon, managing director of investment strategy at OCBC, said the tariffs may worsen the outlook for US consumers.

"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.

St Louis Federal Reserve President Alberto Musalem said on Wednesday it was possible inflation will be higher and growth lower than expected and there is no urgency for the Fed to cut interest rates.

Sterling strengthened 0.24% to US$1.29165, recovering from the previous session's 0.45% fall as traders weighed the spring statement from finance minister Rachel Reeves.

Reeves said on Thursday that Britain was working to secure an exemption from US autos tariffs and could review subsidies enjoyed by Elon Musk's Tesla to better support its industry.

Elsewhere, the Norwegian crown strengthened against the dollar after the central bank kept interest rates on hold on Thursday, as an unexpected resurgence of inflation led policymakers to postpone their previously stated plan for a cut.

The US currency was down 0.12% at 10.5488 crowns.
 
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