The dollar faltered on Tuesday, lingering near a three-year low against the euro and a six-month low against the yen, a position it reached last week, as investors continued to grapple with the fluctuating changes in U.S. tariff policies.
Despite the turbulence in the previous week that severely impacted the dollar, currency markets remained relatively stable during Asian hours. This calm followed the previous week’s upheaval, which highlighted the shaky confidence investors had in the U.S. dollar and American assets, even as Treasury yields surged.
The dollar edged slightly weaker to 142.99 yen, staying close to the six-month low of 142.05 it had reached on Friday. Meanwhile, the euro traded at $1.136, just below the three-year high of $1.1474 that it hit last week. After plummeting to a 10-year low against the Swiss franc last week, the dollar saw a modest 0.2% increase on Tuesday. However, the dollar remains down nearly 8% against the Swiss franc this month, on track for its largest monthly drop since December 2008.
Market attention has largely been focused on the continuously shifting tariff headlines. Over the weekend, the U.S. removed smartphones and other electronics from its tariff list on China, offering some temporary relief. However, comments from President Donald Trump suggested that this relief could be short-lived.
Trump’s decision to impose, and then abruptly delay, tariffs on goods imported to the U.S. has caused confusion, further fueling uncertainty for investors and policymakers worldwide.
Kieran Williams, head of Asia FX at InTouch Capital Markets, explained that this policy uncertainty and the erosion of investor confidence are causing a slow but steady shift away from dollar-based assets. He said, “The recent backpedaling on U.S. tariffs has eased some of the acute market anxiety, softening the dollar’s safe-haven appeal in the near term.”
The yield on the benchmark U.S. 10-year Treasury note fell 1.5 basis points to 4.348% after a nearly 13 basis point drop the previous session. Last week, yields had climbed by about 50 basis points, marking the largest weekly gain in over two decades as analysts and investors questioned whether U.S. bonds still hold their status as the world’s safest assets.
Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities, noted, “Last week was all about deleveraging, liquidation, and asset reallocation out of U.S. assets. This week’s tone is calmer in what is a holiday-shortened week.” He added that dovish comments from Federal Reserve officials, signaling that they are looking beyond inflation, also helped set the current tone.
Federal Reserve Governor Christopher Waller remarked on Monday that the Trump administration’s tariff policies represent a significant shock to the U.S. economy, potentially prompting the Fed to lower interest rates to avoid a recession, even if inflation remains elevated.
Traders are currently pricing in 86 basis points of rate cuts from the Federal Reserve for the remainder of the year, according to LSEG data.
The dollar index, which tracks the U.S. currency against six other major currencies, stood at 99.641, not far from the three-year low it reached last week. The index is down over 4% this month, poised for its largest monthly drop since November 2022.
The British pound was last at $1.3215, while the Australian dollar gained 0.66% to $0.6369. The New Zealand dollar surged to its highest level in four and a half months, rising 0.88% to $0.5926.
