TOKYO (Reuters) -The dollar steadied on Friday against other major currencies, including the euro which was set for its first weekly drop this month, as a busy week for central banks wrapped up and caution remained about the impact of a global trade war.

The U.S. dollar index, measuring the greenback against a basket of six currencies, edged higher to 103.88, after strengthening 0.36% on Thursday - its best single-day performance for three weeks - after the Federal Reserve indicated it was in no rush to cut interest rates.

The euro, which has by far the heaviest weighting in the dollar index, eased 0.09% to $1.0844 after dropping 0.45% on Thursday. It is set to end the week 0.37% lower after a strong two-week run boosted by Germany's massive spending plans.

On Friday, Germany's Bundesrat, the upper house of parliament, passed a reform of the country's borrowing rules and a 500-billion-euro fund to revamp its infrastructure and revive Europe's largest economy.

The euro had rallied in the past two weeks on German Chancellor-in-waiting Friedrich Merz's spending plans although questions about how much and when it will be spent remained.

Kenneth Broux, head of corporate research FX and rates at Societe Generale, said the euro's move on Friday was mostly due to profit-taking.

'RECALIBRATION'

"Overall we've seen a pause in the recalibration away from dollar assets, and that's also been evident in FX, where we've seen the euro starting to retrace some of the gains since the end of January," said Broux.

The week saw major central banks, including the Fed, the Bank of England and Bank of Japan, leave interest rates unchanged as they assessed the economic impact of U.S. President Donald Trump's trade tariffs against global trading partners.

Fed policymakers signalled two quarter-point cuts for later this year, the same median forecast as three months ago.

"We're not going to be in any hurry to move," Fed Chair Jerome Powell said, underscoring the challenge policymakers face in navigating Trump's tariffs policy, and the potential impact on the domestic economy.

A new round of reciprocal levies is expected on April 2.

"As we head into the April 2...announcement, there is an increased risk that market players trim back on USD shorts and look to run a more neutral position," said Chris Weston, head of research at Pepperstone.

The dollar index plumbed a five-month low of 103.19 this week following a steady decline from its highest since late 2022, at 110.17 on January 13, as hopes for expansive policies under Trump gave way to anxiety about a potential U.S. recession caused by a global trade war.

"Euro/dollar has now pretty much converged with bond spreads, especially in the two-year part of the curve," Broux said, adding that it was closer to fair value at around $1.08 per euro.

There could be a "bit more" potential profit-taking in the euro heading into the close on Friday, Broux added, as "there's a bit more work to do" with regards to the U.S. and German 10-year bond yield spread.

The spread between U.S. and German 10-year yields stood at 146 basis points, after widening to 176 bps two weeks ago. A wider spread theoretically supports the euro, while a narrower one favours the dollar.

Elsewhere, the dollar edged up 0.09% to 148.9 yen.

On Wednesday, the Bank of Japan refrained from raising rates again, and warned of heightening economic uncertainty in the wake of ramped-up U.S. tariffs on trading partners.

Sterling fell 0.19% to $1.2944. The Bank of England on Thursday warned that investors should not assume further cuts were guaranteed, given the uncertainty hanging over the global and UK economies. [GBP/]