The US dollar struggled to find its footing on Tuesday, with investors left in limbo over whether real progress was being made to cool tensions in the ongoing US-China trade standoff.
Treasury Secretary Scott Bessent fanned the flames of uncertainty by stating that the responsibility to ease trade tensions now lies with China. In a Monday interview, Bessent emphasized that it was up to Beijing to take the first step in de-escalating tariffs, contradicting earlier suggestions of progress by President Donald Trump, who claimed to have had positive discussions with Chinese President Xi Jinping — a claim swiftly denied by Chinese officials.
This back-and-forth sowed more confusion in financial markets, prompting investors to sell the dollar in favor of traditional safe-haven currencies like the yen and Swiss franc. The greenback last traded 0.11% higher at 142.19 yen, barely recovering from a steep 1.2% drop. It also ticked up 0.18% against the Swiss franc to 0.8217, after a 0.8% decline the previous day.
Investor sentiment saw a mild boost after the Trump administration hinted at moves to soften the impact of its automotive tariffs, suggesting a slight easing of its aggressive trade stance. Yet analysts remained skeptical.
“Given the conflicting signals, a near-term deal looks very unlikely. It seems China is preparing for a prolonged trade battle,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA). “The US tariff strategy appears chaotic, and markets are clearly uneasy about that.”
Despite the lack of substantial progress, both Washington and Beijing have shown minor signs of compromise recently. Trump’s team signaled openness to reducing certain tariffs, while China exempted some US imports from its steep 125% levies.
Meanwhile, the euro edged down 0.15% to $1.1404 but continued on pace for its strongest monthly performance against the dollar in nearly 15 years. Investors are increasingly fleeing US assets in search of alternatives in Europe.
The British pound remained strong, pinned near a three-year high at $1.3427, while the dollar index steadied at 99.079, after a sharp 0.6% fall the previous session.
Looking ahead, markets are bracing for a flurry of US economic data this week that could provide critical clues about the real toll of the trade war. Friday’s closely watched jobs report, along with preliminary GDP figures and inflation data (core PCE), will be particularly important.
“I expect US economic data to weaken further,” said Kong. “When that happens, the dollar could lose even more appeal as a safe-haven currency and behave more like a risk asset.”
Elsewhere, the Canadian dollar held steady at C$1.3837, as Canada awaited the results of a general election dominated by concerns over Trump’s tariff policies and even wild rhetoric about annexing Canada.
The Australian dollar dipped slightly to $0.6431, while the New Zealand dollar slipped 0.27% to $0.59635, reflecting broader caution in the Asia-Pacific region.
As uncertainty looms large, investors seem to be navigating a landscape where the once-mighty dollar no longer offers the safe shelter it once promised.