The Euro rebounded from a three-week low reached earlier on Thursday after US President Donald Trump announced a 25% tariff on imported cars and light trucks, set to take effect next week.

Despite this, the threat of a full-scale trade war dampened risk sentiment.

The currency market's response to the tariffs was relatively subdued, with the main focus on the stock prices of automakers.

The Euro rose 0.3% to $1.078625 after dipping to a three-week low of $1.0733 earlier in the day.

Meanwhile, the yen strengthened slightly, trading at 150.17 per dollar.

The Mexican Peso declined by 0.5%, reaching 20.2054 per Dollar during Asian trading hours, while the Canadian Dollar remained unchanged at a weaker 1.4261 per Dollar, Reuters reports.

In 2024, the US imported $474 billion worth of automotive products, including $220 billion in passenger cars. The largest suppliers were Mexico, Japan, South Korea, Canada, and Germany.

“This potentially drags out trade uncertainty even longer and raises the question of how radical a change to the global trade order is Trump trying to bring about,” stated Kyle Rodda, senior financial market analyst at Capital.com.

The Dollar index, which tracks the Dollar against six major rivals, stood at 104.29, down 0.33% for the day after hitting a three-week high in the previous session.

Vasu Menon, managing director of investment strategy at OCBC, stated that the latest measures are likely to make cars more expensive for US consumers already concerned about inflation, potentially intensifying recession fears.

“Retaliation from countries that have been affected by the latest auto tariffs could worsen the situation for US consumers and automakers and fuel further concerns about inflation and the outlook for the US economy,” he said.

Investor attention will now shift to the reciprocal tariffs set to be announced next week. Trump suggested that these measures may not mirror the exact levies he had previously promised to impose.

Investors are concerned that the trade duties could slow US growth and reignite inflation, though the possibility of tariffs being less severe than expected has recently boosted sentiment.

Elsewhere, Sterling gained 0.26% to $1.2919, recovering from a 0.45% decline in the previous session as traders assessed the spring statement from Chancellor Rachel Reeves.

Reeves scaled back her spending plans in a budget update on Wednesday, offering some reassurance to investors.

Furthermore, data released on Wednesday showed UK inflation eased to an annual rate of 2.8% in February, down from 3.0% in January. This was below analysts' expectations of 2.9%, though experts cautioned that rising energy prices and tax increases could push the rate back up to around 4% later this year.