The U.S. dollar held gains against most of its rivals Thursday, after President Donald Trump formally announced tariffs on steel and aluminum imports. U.S. trade partners Canada and Mexico will be exempted from the levies for now, leading their currencies to strengthen.
In Europe, the euro remained weak following the European Central Bank’s policy update earlier in the day, as market participants judged ECB president Mario Draghi’s words as dovish.
What are currencies doing?
The ICE U.S. Dollar Index DXY, +0.10% was up 0.6% at 90.132. Meanwhile, the broader WSJ U.S. Dollar Index BUXX, +0.09% which also measures the greenback against emerging-market currencies, was up 0.5% at 83.85.
Read: Twin deficit is not the whole story behind dollar weakness, according to Pimco
The euro EURUSD, -0.1218% fell to a three-day low of $1.2311, from $1.2411 late Wednesday, reversing previous gains.
The pound GBPUSD, +0.0724% declined to $1.3813, down from $1.3903 on Wednesday.
Against the Japanese yen USDJPY, +0.53% the dollar strengthened, buying ¥106.29, compared with ¥106.07 on Wednesday.
Also see: Here’s what analysts are looking for in the BOJ policy update
Versus the Canadian dollar USDCAD, -0.1861% , the U.S. currency fell to C$1.2897, down from C$1.2914 on Wednesday. Similarly, against the Mexican peso USDMXN, -0.3167% the greenback traded lower, last buying 18.6484 pesos, down from 18.7130 before.
What is driving the market?
Trump ordered tariffs of 25% on steel imports and 10% on aluminum imports on Thursday afternoon, which will go into effect in 15 days. Canada and Mexico, which are trade partners with the U.S. through the North American Free Trade Agreement, which is currently being renegotiated, will be exempt for now, as expected since the president reiterated these possible exemptions in a televised meeting earlier. Other metal exporters, such as Australia, could also see modifications to the tariffs.
Even though much of the content of the announcement had been reported previously, the Canadian dollar and Mexican peso registered gains during Trump’s speech, while the U.S. dollar index held gains against many of its other rivals.
Read: These currencies have the most to lose as Trump prepares tariffs
Earlier, the European Central Bank removed a sentence from its policy that said that it would increase its asset purchases should the economic outlook deteriorate, signaling that it is moving further down the path of policy normalization.
During the subsequent news conference, however, Draghi, the ECB president, emphasized other elements of the statement, including a commitment to maintaining rates at present levels for an extended period beyond the end of asset purchases, as well as a continued commitment to potentially extending those purchases beyond September, if necessary.
Recap: ECB moves step closer to ending QE
Read: Here’s the case for an unexpected tweak to the ECB’s policy guidance
What are analysts saying?
“In this era of hypersensitive, ‘guidance’ junkie markets, the removal of [the ECB’s easing] guidance was always going to need to require something which [leaned] against markets’ instant and very Pavlovian assessment that this was hawkish rather than the removal of what is and was obviously an unwarranted easing bias, from the context of the obviously positive economic activity and labor data,” said Marc Ostwald, global strategist at ADM Investor Services International.
“The ECB can effectively kick the decision on whether to end the QE program in September, or alternatively to opt for a taper to an €15 billion per month […] during Q4, to the June meeting — with another fresh set of forecasts — and hopefully some clarity on what will be happening with trade tensions,” Ostwald added.
What else is in focus Thursday?
First-time jobless claims for the week ended March 3 came in at 231,000, compared with expectations for 220,000.
Household debt grew 5.2% in the fourth quarter of 2017, its fastest pace in 11 years.