The dollar held steady against a basket of the other major currencies on Tuesday as concerns eased over the prospect of a trade war sparked by U.S. President Donald Trump’s proposed steel and aluminum import tariffs.
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was steady at 90.00 by 03:38 AM ET (08:38 AM GMT).
Fears over a looming trade war eased on Monday as markets took the view that the planned tariffs were a negotiating tactic after Trump stepped up pressure on Mexico and Canada, saying he would lift planned tariffs on steel imports if they signed a new version of the North American Free Trade Agreement, or NAFTA.
But investors remained cautious amid fears that the Trump administration’s protectionist stance could weigh on the dollar, as well as U.S. bonds and equities.
Some market participants also fear that the proposed tariffs could spark inflation and provoke retaliation from U.S. trade partners. Major holders of U.S. Treasuries, including China and the European Union, could reduce their holdings of U.S. assets in response.
The dollar was little changed against the euro, with EUR/USD last at 1.2341, after falling to a low of 1.2268 on Monday amid concerns over Sunday’s inconclusive Italian election results.
With no party winning an outright vote Italy is likely to be plunged into a period of protracted period of political instability, which could stall progress on economic reforms in the euro zone’s third-largest economy.
Against the safe haven yen, the dollar was slightly lower, with USD/JPY slipping 0.17% to 106.03.
The yen showed little reaction overnight after Bank of Japan Governor Haruhiko Kuroda said there were downside risks to the central bank’s projection that inflation would reach its 2% target by fiscal year 2020.
The Japanese currency had risen late last week after Kuroda said the BoJ would discuss an exit from monetary easing if it met its inflation target.
The Canadian dollar was trading near eight-month lows, with USD/CAD recently at 1.2989.
The Australian dollar edged higher, with AUD/USD rising 0.12% 0.7771 after the country’s central bank left interest rates at record lows overnight and sounded less confident that the economy would grow at 3% or more this year, dampening prospects for rate hikes in the coming months.
