The Dollar lingered close to six-week lows on Tuesday, pressured by growing signs of economic strain resulting from the trade war initiated by President Donald Trump's administration.
Although global stock markets have generally bounced back amid the fluctuating tensions over Trump’s tariff policies, the US currency continues to weaken.
Starting on Wednesday, US tariffs on imported steel and aluminium are scheduled to double to 50%, coinciding with the deadline set by the Trump administration for countries to present their strongest proposals in ongoing trade negotiations, Reuters reports.
“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. Interestingly, the Aussie and the kiwi have been the good performers this time around,” stated Rodrigo Catril, senior FX strategist at National Australia Bank.
The Dollar index, which tracks the US currency against six major peers, dipped to 98.58, its lowest level since late April, before recovering with a 0.25% gain.
Whereas against the Yen, the Dollar rose 0.1% to 142.81, while the Euro slipped 0.15% to $1.1426 after briefly reaching a six-week high of $1.1454.
Attention later this week will turn to the European Central Bank’s interest rate decision and its forward guidance.
Preliminary inflation figures for the eurozone in May are also due, with economists expecting the core inflation rate, which excludes food, energy, alcohol, and tobacco, to ease to 2.5%, down from 2.7% in April.
On Monday, the greenback weakened across the board after data revealed that US manufacturing shrank for a third consecutive month in May, while ongoing tariff disruptions led to longer supplier delivery times.
The Dollar found some relief last week, climbing 0.3% after trade negotiations with the European Union resumed and a US trade court halted most of President Trump’s tariffs.
However, that respite was short-lived. A day later, an appeals court reinstated the tariffs, and the Trump administration indicated it has alternative strategies to enforce them if it ultimately loses in court.
Furthermore, Treasury Secretary Scott Bessent said on Sunday that President Trump and Chinese President Xi Jinping were likely to hold a call soon to resolve trade tensions. However, on Monday, China’s Commerce Ministry issued a rebuttal to US accusations, denying that Beijing had breached the terms of 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,” said ING strategist Francesco Pesole.
“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 added