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The euro fell on Thursday as European Central Bank President Mario Draghi, while acknowledging faster growth in Europe, said regional inflation remained subdued and rising protectionism is a risk.
The dollar strengthened on the euro's weakness and held onto its gains as US President Donald Trump signed a version of the steel and aluminum tariffs, which was not as severe as some traders had feared and less likely to trigger a global trade war.
Draghi expressed his view on these issues at his news conference after a central bank policy meeting. It overshadowed the ECB's dropping of a long-standing pledge to increase its bond purchases if needed, a move that briefly spurred buying of the single currency. "All of which sent the euro yo-yoing as the markets ponder the very real threat of a trade war between the US and the EU," said David Lamb, head of dealing at FEXCO Corporate Payments in Edinburgh.
Draghi's comment on protectionism came as traders had been awaiting on details on Trump's proposed tariffs, which has whipped up investor angst and outcry from US trade partners. Trump's proclamation imposed a 25 percent levy on steel and a 10 percent tariff on aluminum. It allowed an exemption to Canada and Mexico amid current negotiations on the North American Free Trade Agreement. There is also a possibility of alternatives for other nations.
Trump promised earlier on Thursday to show great flexibility and cooperation toward the United States' "real friends." The dollar, which is seen a safe haven on trade war fears, had dipped on prospects for a softening stance on the tariffs before gaining on perceived dovish remarks from Draghi.
"It's more Draghi-driven than Trump-driven," Boris Schlossberg, managing director of FX strategy with BK Asset Management in New York said of the dollar. The greenback had weakened following the resignation on Tuesday of Gary Cohn, Trump's top economic adviser, who was seen as a bulwark against protectionism in the White House.
The index, which tracks the greenback versus a basket of six currencies, rose 0.489 point or 0.55 percent, to 90.126. The euro was last down 0.81 percent, at $1.2311.
The Canadian dollar was up 0.12 percent, at C$1.2893. The Mexico peso was up 0.33 percent, at 18.6500 peso per dollar.
With the ECB and Trump's tariffs in the rear-view mirror, traders await news from the Bank of Japan's policy meeting and the US government's payrolls report for February. "We think that they will not make any changes. Inflation is ticking higher but under their target," said John Doyle, vice president of dealing and trading at Tempus Inc in Washington.
On Tuesday, Bank of Japan Governor Haruhiko Kuroda said a future exit of its ultra-loose monetary policy would need to be "very gradual," tempering his remarks before lawmakers that the central bank would consider an exit if his inflation target were reached in fiscal 2019.
Analysts forecast a solid US jobs report for February, due at 8:30 am EST (1350 GMT) on Friday, which would support the view the Federal Reserve would raise interest rates later this month.
The dollar was last up 0.15 percent, at 106.22 yen, while the euro was down 0.64 percent, at 130.79 yen.

Copyright Reuters, 2018

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