Dollar Holds Firm on New US Tariffs, Middle East Tensions

Financial markets stayed cautious Friday as traders weighed a new round of US tariffs and rising Middle East tension. The dollar index held near the 104.50 level, supported by haven demand and uncertainty over the tariff's impact on trade flows.

A senior White House official said the 25% levy on steel and aluminum imports takes effect next week, covering shipments from Canada, Mexico, and Brazil. The administration framed the measure as a national security action, using the same legal authority as the 2018 steel tariffs. European Union officials have already drafted retaliatory duties on US goods worth €2.8 billion, two diplomats said.

In the Middle East, Israel struck targets near Damascus late Thursday, and Houthi forces in Yemen fired a ballistic missile toward southern Israel, the Israeli military said. Crude oil rose 1.2% to $81.70 a barrel, its highest this month.

The yen weakened past the 152 mark against the dollar, with traders expecting the Bank of Japan to hold its policy rate steady at 0.25% when it meets April 26. Sterling slipped 0.3% to $1.2680 after UK industrial production fell 0.4% in February, Office for National Statistics data showed.

An options trader at a London bank said the dollar's next test comes Tuesday with the US March consumer price index print. "If the core comes in below 0.2%, the whole higher-for-longer trade unwinds fast," the person said, declining to be named because they were not authorised to speak publicly.