The U.S. dollar rebounded on Tuesday, recovering from a six-week low against the euro. Despite this recovery, market sentiment remains cautious as traders remain focused on the ongoing trade conflict between the U.S. and key global partners, particularly China and the European Union.
Dollar Shows Modest Recovery
After slipping to a six-week low, the U.S. dollar gained 0.7% against the yen, reaching 143.73, and 0.5% against the euro, settling at $1.1386. The euro had briefly climbed to $1.1454 earlier, but the latest movement suggests a limited bounce in the dollar’s fortunes. Marc Chandler, chief market strategist at Bannockburn Global Forex, described the rebound as “fairly constrained,” with no major news driving the shift.
Eurozone Inflation Drops Below ECB Target
The euro also faced pressure as inflation in the eurozone fell below the European Central Bank’s target of 2%. This unexpected slowdown has increased expectations that the ECB will likely cut interest rates in its upcoming meeting, adding more uncertainty to the region’s economic outlook and further weighing on the euro.
Rising Trade Tensions and U.S. Tariff Impact
U.S. tariffs on steel and aluminum imports, set to double to 50% on Wednesday, remain a major source of market anxiety. President Trump’s administration is also pushing countries to submit their final offers for trade deals. Meanwhile, tensions with China over trade practices, particularly the dispute over tariff rollbacks and intellectual property, are escalating. This backdrop of trade friction continues to influence the U.S. dollar’s volatility, with markets uncertain of the long-term implications.
Francesco Pesole, an ING strategist, noted that China’s increasing control over global supply chains, especially in areas like chip manufacturing and rare earths, could shift the balance of power in trade negotiations. “There’s room for a positive surprise if the talks between Trump and Xi produce a resolution,” Pesole said.
Labor Market and Fiscal Concerns Add Pressure
In addition to trade issues, concerns about the U.S. labor market are adding to the economic uncertainty. Although U.S. job openings rose in April, a simultaneous increase in layoffs signals potential weakness ahead. This reflects the broader economic challenges exacerbated by tariffs, with the job market showing signs of slowing down. Furthermore, fiscal concerns have risen as the Senate prepares to consider a tax and spending bill that could add $3.8 trillion to the national debt over the next decade.
Global Confidence Shaken by U.S. Economic Policy
The dollar’s struggles are compounded by growing concerns about U.S. fiscal policy and the unpredictability of President Trump’s trade actions. With assets like Treasury bonds and U.S. stocks underperforming, a “sell America” sentiment is gaining momentum among investors. The market is increasingly uncertain about the sustainability of U.S. economic policies and the potential long-term effects of tariff wars.
Global Currency Movements
In other currency markets, the British pound fell by 0.3%, settling at $1.35045, ahead of key events including a series of speeches from Bank of England officials and a long-dated government bond auction.
