NEW YORK: The dollar hovered near six-week lows on Tuesday, as mounting evidence of economic damage from the trade war waged by President Donald Trump’s administration weighed on sentiment.
While global equity markets have broadly recovered in the wake of the on-again, off-again saga of Trump’s tariff threats, the greenback remains firmly on the back foot. Factory and jobs data in the coming days may give further signs of the toll that trade uncertainty is wreaking on the world’s biggest economy.
US duties on imported steel and aluminium are set to double to 50% starting on Wednesday, the same day the Trump administration expects countries to submit their best offers in trade negotiations.
“What this whole dynamic is basically saying is trade tensions are not really improving in that regard, and we’ve seen the dollar getting hammered widely,” said Rodrigo Catril, senior FX strategist at National Australia Bank. “Interestingly, the Aussie and the kiwi have been the good performers this time around.”
The dollar index, which measures the US currency against six others, touched 98.58, the lowest since late April, before rising 0.5%. The dollar was up 0.26% against the yen at 143.075. The euro fell 0.44% to $1.1392, having briefly touched a six-week high of $1.1454. Data earlier showed inflation in the euro zone slowed below the European Central Bank’s target of 2%, underpinning expectations for a rate cut later this week.
The dollar sank broadly on Monday after data showed US manufacturing contracted for a third month in May and tariff snarls meant suppliers took longer to deliver goods. Attention now turns to US factory order numbers on Tuesday, followed by jobs data later in the week. The dollar got some respite last week, rising 0.3% after trade talks with the European Union got back on track and a US trade court blocked the bulk of Trump’s tariffs. An appeals court reinstated the duties a day later, and Trump’s administration said it had other avenues to implement them if it loses in court.
Trump and Chinese President Xi Jinping were likely to have a call soon to iron out trade differences, Treasury Secretary Scott Bessent said on Sunday, although on Monday there was an angry rejection from China’s Commerce Ministry of US accusations that Beijing violated their trade agreement.
“Trade developments remain crucial. Reports suggest China is gaining leverage over the US through its control of chip supply chains and rare earths,” ING strategist Francesco Pesole said. “Trump and Xi Jinping are set to speak this week, and past direct talks have sometimes eased tensions. That leaves room for a positive surprise that could help the dollar at some point this week,” he said.
Fiscal worries have also given rise to a broad “sell America” theme that has seen dollar assets from stocks to Treasury bonds dropping in recent months.
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