Dollar advances as risk appetite rises, but weak outlook persists

NEW YORK: The dollar rose on Tuesday, led by gains against the yen and Swiss franc, as risk appetite improved and Wall Street's main indexes advanced, helping the US currency stabilize after recent declines.

The outlook for the dollar, however, remains murky due to global trade tensions. The greenback has lost 2 percent so far this year.

"At the moment, support from high expectations for further monetary policy tightening from the Federal Reserve has been offset by ongoing political pressures and global trade uncertainties," Fawad Razaqzada, market analyst at Forex.com in London, said.

China on Sunday announced tariffs on $3 billion in imports of US food and other goods in response to US tariffs on imports of aluminum and steel, a skirmish that investors fear is a prelude to a broader trade war.

The Trump administration is expected to announce this week US tariffs on $50 billion to $60 billion in Chinese imports. On Tuesday, China's ambassador to the United States said Beijing will take counter-measures of the "same proportion" and scale if Washington imposes further tariffs.

In afternoon trading, the dollar rose 0.2 percent against a basket of currencies to 90.184.

Analysts said investors were also focused on US payrolls data and comments by Fed Chairman Jerome Powell at the end of the week, which should help determine the dollar's direction.

"Within Friday's jobs data, investors will be focused on wage inflation, with signs of increasing pressure on wages likely to reignite talk of broader inflation and possible four Fed rate increases this year," said Omer Esiner, chief market analyst, at Commonwealth Foreign Exchange in Washington.

"Such a scenario could help limit the dollar's losses going forward."

Also on Tuesday, San Francisco Fed President John Williams was named head of the New York Fed, a move expected to cement the US central bank's gradual rate-hike policy.

"(Williams) is not going to cause problems with the market. Stability and non-controversial may just be what is needed in these times," said Carl Kaufman, portfolio manager, at Osterweis Capital Management in San Francisco.

Against the yen, which tends to benefit in times of economic uncertainty, the dollar snapped three days of losses to trade 0.6 percent higher at 106.58 yen.

Traders though are still betting on a stronger yen and a broadly weakened dollar if the trade tensions escalate.

The dollar also advanced versus another safe haven, the Swiss franc, rising 0.4 percent to 0.9592 franc.

The euro tumbled after a survey showed the euro zone's manufacturing boom faltered for a third month in March, although output remained robust.