The U.S. dollar held steady on Friday against a range of major currencies, including the euro, which is poised to experience its first weekly decline this month. This stability comes after a week filled with central bank activities, as concerns linger regarding the ramifications of a potential global trade war. The U.S. dollar index, which gauges the dollar’s strength against a basket of six currencies, edged up to 103.88 after a 0.36% increase on Thursday—marking its best single-day performance in three weeks.

Euro’s Weekly Downturn

The euro, which plays a significant role in the dollar index, slipped 0.09% to $1.0844 following a 0.45% drop the previous day. After a robust two-week rally driven by Germany’s ambitious spending plans, the euro is set to close the week down 0.37%.

On Friday, Germany’s Bundesrat, the upper chamber of parliament, approved a reform of the nation’s borrowing regulations alongside a substantial 500-billion-euro fund aimed at revitalizing its infrastructure and stimulating Europe’s largest economy. Despite the positive developments, uncertainty remains about the timing and magnitude of Chancellor-in-waiting Friedrich Merz’s spending initiatives.

Profit-Taking Influences Euro Movement

Kenneth Broux, head of corporate research for FX and rates at Societe Generale, attributed the euro’s decline on Friday mainly to profit-taking. He noted, "We’ve observed a pause in the recalibration away from dollar assets," indicating that the euro is beginning to reverse some of its gains since late January.

Central Banks Maintain Interest Rates

Throughout the week, several prominent central banks—including the Federal Reserve, the Bank of England, and the Bank of Japan—opted to keep interest rates unchanged. Policymakers are currently evaluating the economic impacts of President Donald Trump’s trade tariffs on international trading partners. The Fed has hinted at two quarter-point rate cuts later this year, maintaining the same forecast as three months prior.

Fed Chair Jerome Powell emphasized, "We’re not going to be in any hurry to move," highlighting the challenges posed by Trump’s tariff policies and their potential effects on the domestic economy. As anticipation builds for a new round of tariffs set to be announced on April 2, market participants are adjusting their positions accordingly.

Dollar Index and Bond Yield Spread Insights

The dollar index reached a five-month low of 103.19 this week, following a gradual decline from its peak of 110.17 on January 13. Investors are increasingly concerned about a U.S. recession triggered by escalating global trade tensions.

Broux commented on the current state of the euro-dollar relationship, stating that it has aligned closely with bond spreads, particularly in the two-year sector, suggesting a fair value near $1.08 per euro. He also pointed out potential profit-taking opportunities leading into Friday’s market close, along with the need to monitor the U.S. and German 10-year bond yield spread, which currently stands at 146 basis points.

Other Currency Movements

In other currency movements, the dollar saw a slight increase of 0.09% to 148.9 yen. The Bank of Japan opted not to raise interest rates yet again on Wednesday, citing increasing economic uncertainty due to the heightened U.S. tariffs. Meanwhile, the British pound fell 0.19% to $1.2944, as the Bank of England cautioned that further cuts are not guaranteed amidst ongoing global and UK economic uncertainty.

As financial markets brace for potential shifts, traders and investors will be keenly observing these developments in the coming weeks.