Investing.com - The US dollar rose Friday following fresh tariff threats from US President Donald Trump, while the euro stayed weak after an interest rate cut by the European Central Bank.
At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.5% higher to 108.160.
Dollar helped by tariffs threat
The US dollar has benefited from President Donald Trump stating on Thursday that the United States will put a 25% tariff on imports from Mexico and Canada, major US trade partners, potentially by as soon as Saturday.
“The weekend will present the first test of how serious US President Donald Trump is with his protectionism threat, as Canada and Mexico face a 25% tariff deadline tomorrow,” said analysts at ING, in a note.
“Markets continue to treat those threats with a dose of caution, and should we effectively see an official imposition of tariffs tomorrow, both CAD and MXN look at major downside risks.”
USD/CAD fell 0.1% to 1.4465 and USD/MXN dropped 0.1% to 20.6810, after both pairs jumped sharply higher on the news.
The Federal Reserve left its benchmark overnight interest rate in the 4.25%-4.50% range on Wednesday, with officials removing the reference that inflation having "made progress" toward the Fed's 2% inflation goal.
December's core PCE price index in the United States - the Federal Reserve's preferred measure of inflation - is set for release later in the session, and could provide further clues on the central bank's rate outlook.
Euro slips after ECB cut
In Europe, EUR/USD dropped 0.2% to 1.0368 in the wake of the European Central Bank cutting interest rates by a quarter of a percentage point on Thursday.
This was the fifth ECB rate cut since June, and markets expect as many as three more this year, driven by arguments that the biggest inflation surge in generations is nearly defeated and the flagging economy needs relief.
Evidence for this view arrived Friday with the release of disappointing German retail sales data for December, dropping 1.6% on the month, while French consumer prices increased slightly less than anticipated in January, up 1.8% year-on-year in January, below the ECB’s 2% medium-term target.
Away from the data, EUR/USD will continue “to follow the tariff-driven swings in the dollar. Should Trump impose tariffs on Canada and Mexico by tomorrow, we think EUR/USD can easily head below 1.030 on the back of USD strength and greater tariff risk could be embedded into the euro.”
GBP/USD slipped marginally lower to 1.2418, with eyes turning to next week’s policy-setting meeting by the Bank of England.
The UK central bank is expected to keep interest rates unchanged on Thursday, but fears about the strength of Britain's economy means sterling remains vulnerable to sharp moves lower.
Yen slips despite jump in Tokyo CPI
In Asia, USD/JPY traded 0.3% higher to 154.63, in line with the broader mood, even as a strong inflation print from Tokyo kept rate hike bets alive.
Data on Friday showed that the Tokyo consumer price index rose as expected in January, reaching a nearly two-year high, driven by strong private spending.
Headline CPI inflation accelerated to 3.4% year-on-year, up from 3% in December, marking its highest level since April 2023, while core CPI, which excludes fresh food prices, increased 2.5% year-on-year, hitting an 11-month high.
USD/CNH traded 0.1% higher at 7.2966, with thin trading volumes due to the Lunar New Year holiday.