Dollar pulls back from 2018 high as traders eye threat of fresh tariffs

The U.S. dollar declined on Thursday, pulling back from a 2018 high on renewed trade-war jitters after the Trump administration said it was investigating whether to slap import tariffs on cars.

Meanwhile, the U.K. pound gained strength on the back of better-than-expected retail sales data, while the Turkish lira resumed its selloff even after the country��s central bank hiked interest rates.

What are currencies doing?

The ICE U.S. Dollar Index DXY, -0.13% �dropped 0.2% to 93.785, after rising to its highest level since mid-December on Wednesday.

The pound GBPUSD, +0.3971% �climbed to $1.3399, from $1.3348 late Wednesday in New York. In Wednesday��s session, sterling fell to a fresh 2018 intraday low, as an unexpected drop in U.K. inflation cast doubt on the chances of an August interest rate rise from the Bank of England.

The euro EURUSD, +0.1624% �rose to $1.1722, from $1.1699 on Wednesday.

The dollar also fell against the yen, buying 楼109.70, compared with 楼110.08 on Wednesday.

The Turkish lira USDTRY, +4.2022% �dropped more than 4% against the dollar, resuming its selloff, which appeared to have been stemmed only for a while by Wednesday��s interest-rate hike. The renewed slide makes it more likely that Turkey��s central bank will act on rates again, analysts said.

What is driving the market?

The pullback in the dollar came after news that President Donald Trump is asking for new tariffs of as much as 25% on vehicle and auto-parts imports. The move, a further sign of his administration��s protectionist approach, is seen as potentially ramping up trade tensions.

Check out: Trump��s tariff threat vexes global auto makers, sending shares lower

Earlier in the week, the greenback rallied on signs the U.S. and China were moving closer to an agreement on narrowing the trade gap between the two countries. The deal is seen as lowering the risk of a full-blown trade war.

What are strategists saying?

��Early in the Asian session, news broke that the Trump administration is going to open an investigation into auto imports on national security grounds, like the steel the aluminum actions. As one would expect, the auto sector traded heavily in Asia,�� said analysts at BBH in a note.

��Past protectionism, dollar-fluctuations, and the desire to be near an important customer base have encouraged Asian and European automakers to locate production facilities inside the U.S. However, broadening of US protectionist thrust on national security grounds keeps the breakdown of the liberal trading system very much in focus, despite some optimism that had crept from a de-escalation of US-China tensions,�� they added.

Sara Sjolin

Sara Sjolin is a MarketWatch reporter based in London. Follow her on Twitter @sarasjolin.

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