Dollar reverses losses after Trump comments; euro pares gains

NEW YORK (Reuters) - The U.S. dollar reversed losses on Thursday when President Donald Trump said he wanted a “strong dollar,” a day after Treasury Secretary Steven Mnuchin said he welcomed a weaker greenback, which moved the currency lower against the euro.

The dollar index, which measures the greenback against a basket of six major currencies, was little changed on the day at 89.209, after dropping as low as 88.438, its lowest since December 2014.

The dollar index has fallen about 12 percent since April 12 when Trump told the Wall Street Journal that the dollar “is getting too strong.”

“If you take the overall stance of the U.S. administration, it’s protectionist and still it’s not clear what kind of dollar the president and the Treasury want,” said Vassili Serebriakov, FX strategist at Credit Agricole in New York.

“But it still doesn’t sound like they really want a strong dollar given the fact that they are aiming to boost exports.”

Trump decided to impose steep import tariffs earlier in the week on washing machines and solar panels, flaming worries about trade protectionism that sent the greenback on the defensive.

Earlier in the session, the euro soared to a fresh three-year high after European Central Bank President Mario Draghi said economic data pointed to “solid and broad” growth with inflation likely to rise in the medium term from subdued levels.

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The euro jumped about 1 percent to $1.2536, its highest since mid-December 2014, before paring gains to trade up 0.12 percent against the dollar.

Draghi warned that the surge in the euro was a source of uncertainty and said the ECB might have to review strategy if U.S. comments on the benefits of a weak dollar lead to a change in monetary conditions.

Some market participants had been expecting Draghi to take a firmer stance addressing the euro’s potentially damaging surge against the dollar.

“Overall, the comments regarding the exchange rate were benign,” said Eric Viloria, currency strategist at Wells Fargo Securities in New York.

“There was a lack of any forceful comments with respect to the recent euro strength,” he said.

Earlier in the session, sterling strengthened to its highest levels on a trade-weighted basis since shortly after Britain’s European Union referendum in June 2016, as optimism around Brexit and the economy continued to fuel a surge in the currency.

However, with the dollar’s late rally sterling fell 0.62 percent to $1.4152.

Reporting by Stephanie Kelly and Saqib Iqbal Ahmed; Editing by Meredith Mazzilli and Lisa Shumaker