NEW YORK (Reuters) - The dollar fell against most currencies on Friday, dropping to its lowest in more than two years against the yen, as President Donald Trump’s proposal to impose hefty tariffs on steel and aluminium imports raised prospects of a trade war that could damage the U.S. economy.

FILE PHOTO: A Japan Yen note is seen in this illustration photo taken June 1, 2017. REUTERS/Thomas White/Illustration/File Photo

Friday’s sell-off came just as the dollar had risen to multi-week highs amid strong data and an upbeat view on the economy from Federal Reserve Chairman Jerome Powell, which reinforced expectations of three or more interest rate hikes this year.

“Historically, the dollar loses from trade wars, which underscores our structural bearish views, especially as the ramping up of twin deficits will require international funding over the next few years,” said Mark McCormick, head of North American FX strategy at TD Securities in Toronto.

Trump announced on Thursday he would impose heavy tariffs on imported steel and aluminium to protect U.S. producers, risking retaliation from major trade partners such as China, Europe and Canada.

The dollar fell to 105.26 yen, the lowest since November 2016 and was last down 0.5 percent at 105.72 yen. Against the euro and sterling, the yen was up 0.1 percent and 0.5 percent respectively.

The yen also rallied after Bank of Japan Governor Haruhiko Kuroda said the BoJ would consider an exit from its ultra-easy monetary policy if it met its inflation target in the year ending in March 2020.

The dollar was already on the back foot before Kuroda spoke, having pulled sharply back from six-week highs after Trump’s decision to impose tariffs.

The dollar index, tracking it against a basket of major currencies, fell 0.4 percent to 89.957.

Bilal Hafeez, a macro strategist at Nomura in London, said the extent of the dollar reaction to the tariffs will likely depend on the reaction of other countries to the move.The euro, meanwhile, was up 0.5 percent versus the dollar, with the focus on Sunday’s Italian parliamentary election and the level of support for populist agendas that could have a wider impact on the European Union.

Investors will also focus on the U.S. jobs report for February due next week. The consensus expectation for average hourly earnings growth for month is for a 0.2 percent increase, while the headline non-farm payrolls is seen to have grown by 200,000 jobs, according to a Reuters poll.

“Given the recent market turbulence that was initially driven in part by higher-than-expected wage growth figures in the last jobs report, this piece of data will take on particular importance,” said James Chen, head of research at Forex.com in Bedminster, New Jersey.