The Dollar strengthened on Tuesday after investors reacted positively to US President Donald Trump’s decision to postpone higher tariffs on the European Union.

Meanwhile, the Yen weakened due to a significant drop in Japan’s long-term bond yields.

Analysts noted that, with US and UK markets closed for a public holiday on Monday, some traders were still responding to Sunday’s announcement of the tariff delay.

Although the news gave the Euro a lift on Monday, it was also seen as supportive for the Dollar, which remained broadly strong on Tuesday.

The Dollar index was last up by approximately 0.4% at the time of writing.

“I would guess it is because Trump retreated over the weekend. Yesterday markets were closed so there was only a small move, now with the UK being back it's a recovery of the move we saw on Friday,” stated Commerzbank FX analyst Michael Pfister.

The Dollar showed its strongest gains against the Yen, rising 0.75% to 143.91 Yen, Reuters reports.

The move followed a sharp decline in long-term Japanese government bond yields, triggered by a Reuters report that Japan’s Ministry of Finance is considering reducing the issuance of super-long bonds in response to recent steep yield increases.

“It's a big move so obviously it's dragging down the currency,” according to Francesco Pesole, FX strategist at ING. “The Yen is still probably the G10 currency - outside of the Dollar - that has more domestic drivers.”

Japanese Finance Minister Katsunobu Kato said on Tuesday that the government is closely monitoring the debt market. Meanwhile, Bank of Japan Governor Kazuo Ueda emphasised the need for the central bank to remain alert to rising consumer prices, indicating a continued willingness to raise interest rates.

Globally, long-term bond yields have been climbing, driven by increasing worries over expanding fiscal deficits in major developed economies, particularly the United States and Japan.

Market focus shifted to the US Senate’s debate over President Trump’s tax-cut bill, which is anticipated to further inflate the national debt of the world’s largest economy.

Investor sensitivity to the proposal has grown, especially in the wake of Moody’s downgrade of the US sovereign credit rating on 16^th May.

Last week, the US House of Representatives approved a version of President Trump’s tax-cut bill, which the Congressional Budget Office estimates will increase the federal debt by approximately $3.8 trillion over the next 10 years, adding to the current $36.2 trillion debt load.

Elsewhere, the Euro fell 0.3% to $1.1346 against a broadly stronger Dollar, while the British Pound edged down nearly 0.2% to $1.3542. The greenback also rose 0.6% against the Swiss Franc, reaching 0.8258.