FOREX-Dollar steadies as euro hit by U.S. trade tariff concerns

LONDON - 31 August 2018: The euro fell on Friday on anxiety about an escalating trade conflict between the U.S. and the European Union.

The euro has strengthened in recent sessions partly due to easing concerns about a global trade war denting the dollar's safe-haven appeal. But on Thursday U.S. President Donald Trump said that the European Union's proposal to eliminate auto tariffs was "not good enough".

That left some investors fearful about the outlook for Europe's economy and its currency since Trump has already threatened to impose tariffs on cars assembled by the likes of German automakers Volkswagen AG, 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 the forecasting uncertainty for the European Central Bank so that the euro outlook deteriorates somewhat again," she added.

The single currency was down 0.1 percent at $1.1662 after losing about 0.3 percent overnight when a rise in Italian government bond yields put additional pressure on the currency.

Risk appetite more broadly was hurt 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 and at 1110 GMT the dollar index was flat at 94.7.

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. On Friday it was up 0.2 percent at 110.785 per dollar.

The Swiss franc, another safe-haven, rose for the sixth successive session to reach 0.9654 franc per dollar, its strongest since mid-April.

Emerging market currencies had less luck, with currencies relying on foreign capital to finance their current account deficit hit the hardest.

The Argentinian peso, 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 to near its September 2015 record low.

"Monetary policy tightening by the Federal Reserve is squeezing the global flow of dollars which in turn is putting pressure on emerging market currencies," said Miles Eakers, chief market analyst at FX and payments specialist Centtrip.

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 rattled on Thursday by reports its central bank deputy governor was leaving the bank.