Investing.com - The euro pared back gains on Thursday as the U.S. imposed steel and aluminum tariffs on the European Union, Mexico and Canada, backing away from the highs of the day hit earlier amid easing concerns over the Italian political crisis.
EUR/USD was up 0.08% to 1.1672 by 10:35 AM ET (14:35 GMT), after rising as high as 1.1724 earlier.
U.S Commerce Secretary Wilbur Ross said Thursday that the U.S. was moving ahead with tariffs on aluminum and steel imports from Canada, Mexico and the EU, ending a two-month exemption and potentially setting the stage for a trade war.
The ratcheting up of trade tensions offset optimism that the Italian political crisis can be resolved before too long.
The single currency has rebounded after falling to ten-month lows of 1.1509 on Tuesday amid fears that repeat elections in Italy could give a mandate for the country to exit the euro zone.
Fresh attempts by Italy’s anti-establishment Five Star and Lega parties to revive their coalition plans raised hopes of a resolution, but investors remained cautious as political risk in the euro area remained elevated.
In Spain, Prime Minister Mariano Rajoy is facing a vote of no confidence in the government on Friday, which is likely to pass.
Investors were also wary amid ongoing concerns about a trade spat between the U.S. and China, as well the situation in North Korea.
The dollar was lower against the yen, with USD/JPY losing 0.35% to trade at 108.51, moving back towards Tuesday’s five month lows of 108.10 as risk aversion underpinned the Japanese currency.
The euro was also lower against the yen, with EUR/USD off 0.25% at 126.70 after climbing 1.04% on Wednesday.
The dollar dropped to five-week lows against the traditional safe haven Swiss franc, with USD/CHF falling 0.45% to 0.9845.
The pound pushed higher, with GBP/USD up 0.29% 1.3325 after hitting a six-month low of 1.3203 on Tuesday, pressured lower by political risk in the euro zone.
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was down 0.10% to 93.96, down from Tuesday’s seven month highs of 94.98.