LONDON (Reuters) – The euro headed for a third consecutive week of gains on Friday but hopes for a meaningful rally were undermined by anxiety over an escalating trade conflict between the U.S. and the European Union.
FILE PHOTO – Euro banknotes and coins are displayed at a fruit merchant on a market in Nice, France, November 16, 2017. REUTERS/Eric Gaillard
The euro has strengthened in recent sessions as easing concerns about a global trade war dented the dollar’s appeal as a safe-haven, and the European Central Bank heads towards ending its unconventional monetary policy.
But on Thursday U.S. President Donald Trump said in an interview with Bloomberg that the European Union’s proposal to eliminate auto tariffs “is not good enough”.
That made some investors worried about the outlook for Europe’s economy and its currency since President Trump has already threatened to impose tariffs on cars assembled by the likes of German automakers Volkswagen AG (VOWG_p.DE), Daimler AG and BMW AG.
“Traders of the euro have to fear that Trump will take a tougher approach on the EU in the future,” said Esther Reichelt, an FX analyst at Commerzbank.
“That increases uncertainty for the economy and increases the forecasting uncertainty for the European Central Bank so that the euro outlook deteriorates somewhat again,” she added.
The single currency was up 0.1 percent at $1.1679 EUR=EBS after losing about 0.3 percent overnight when a rise in Italian government bond yields put additional pressure on the currency.
Investor risk appetite was broadly curbed by a report that President Trump also plans to impose new tariffs on China next month and an ongoing rout in emerging market currencies.
The greenback held on to most of its gains for the week, acting as a safe-haven trade. At 0810 GMT the dollar index was down 0.2 percent at 94.582. .DXY
“There is an ongoing trend to buy the dollar on the trade friction theme, which has negatively affected emerging market currencies and in turn fuels the dollar’s rise,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.
Adding to geopolitical uncertainty Trump also threatened in an interview with Bloomberg on Thursday to withdraw from the World Trade Organization if “they don’t shape up” — a move that would further undermine one of the foundations of the modern global trading system.
Those remarks dampened any positive sentiment following negotiations over the North American Free Trade Agreement (NAFTA).
The cautious mood helped lift the yen, which rose 0.6 percent on Thursday, its biggest daily rise in about six weeks. In early Friday trade, it was up 0.3 percent at 110.73 per dollar JPY=D3.
Emerging market currencies had less luck, with currencies relying on foreign capital to finance their current account deficit hit the hardest.
The Argentinian peso ARS=RASL, the world’s worst-performing currency this year due to the country’s poor economic health, fell 10 percent on Thursday, bringing its month-to-date losses to 27 percent.
Argentina’s central bank voted unanimously at an emergency meeting on Thursday to raise its benchmark rate to 60 percent from 45 percent. However, the unexpected move failed to stabilise the peso.
That knocked the Brazilian real BRL= to near its September 2015 record low.
The Turkish lira, which has been hit by concerns over President Tayyip Erdogan’s interference in monetary policy and his diplomatic spats with Washington, also slipped towards a record low marked about two weeks ago.
It was hit on Thursday by reports its central bank deputy governor was leaving the bank.
Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Jan Harvey