The dollar struggled to reclaim lost ground on Tuesday as investors remained uncertain over any potential cooling of the U.S.-China trade dispute, with U.S. Treasury Secretary Scott Bessent emphasizing that the ball was in Beijing’s court to advance negotiations.
Speaking Monday, Bessent asserted that China must take the first steps toward easing tariff pressures—a stance that added to the growing chorus of mixed signals on trade talks between the world’s top two economies. While President Donald Trump has maintained that discussions with Chinese President Xi Jinping are progressing, Beijing has publicly refuted any such breakthroughs.
This murky backdrop kept pressure on the greenback, which had already taken a hit against traditional safe-haven currencies like the yen and Swiss franc. On Tuesday, the dollar managed a modest recovery, gaining 0.48% against the franc to 0.8238 and climbing 0.27% to reach 142.41 yen, though trading volumes were subdued due to a public holiday in Japan.
Some positive sentiment emerged after news that the Trump administration planned to ease the blow of its automotive tariffs, although traders remained cautious.
“With so many contradictory messages flying around, a swift deal seems unlikely, and China appears to be bracing for a long-drawn-out conflict,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia. “U.S. tariff policy feels chaotic, and markets hate that instability. Still, there's a glimmer of optimism that the worst might be behind us.”
Despite scant tangible progress, recent gestures from both Washington and Beijing—including tariff exemptions on select U.S. goods and hints of willingness to roll back some levies—have slightly softened the tone of the standoff.
Elsewhere in currency markets, the euro slipped 0.34% to $1.1383 but remained on pace for its strongest monthly gain against the dollar in over two years, as investors sought safer alternatives in Europe. Sterling remained resilient, hovering near a three-year high at $1.3399.
The dollar index steadied at 99.25 after dropping 0.6% in the previous session. However, it was on course for a steep monthly decline of 4.7%, the worst since November 2022.
North of the border, the Canadian dollar weakened by over 0.2% to C$1.3863 following Prime Minister Mark Carney’s election victory. Although Carney's Liberals stayed in power, they failed to secure a majority, casting doubts over Canada's ability to navigate looming tariff talks with the U.S.
“Investors dread two things: uncertainty and minority governments—and Canada now has both,” said Matt Simpson, senior market analyst at City Index. “With legislation likely to face hurdles, trade negotiations could become even rockier.”
Markets are bracing for a packed week of U.S. economic releases, including Friday’s critical non-farm payrolls report, preliminary first-quarter GDP figures, and core PCE inflation data—the Federal Reserve’s preferred inflation measure.
“I expect U.S. economic data to show further weakness,” Kong added. “That will likely add more pressure on the dollar, as it’s behaving less like a safe-haven and more like a risk-sensitive currency now.”
Meanwhile, the Australian dollar briefly touched a four-month high of $0.6450 before retreating slightly to $0.6415, while the New Zealand dollar slipped 0.47% to $0.5952.