Dollar Struggles Amid Trade War Confusion and Weakening U.S. Outlook

The dollar struggled to recover on Tuesday after sharp losses, as confusion over the Sino-U.S. trade war continued to unsettle markets. Treasury Secretary Scott Bessent said the onus was on China to de-escalate tariffs, contrasting President Trump’s claims of progress with Beijing’s denials. Investors, seeking safe havens, sold off the dollar, pushing it down sharply against the yen and Swiss franc on Monday.

The U.S. currency edged up 0.11% to 142.19 yen and rose 0.18% against the franc to 0.8217 but remained well below previous levels. Sentiment improved slightly after news that Trump’s administration plans to ease the impact of automotive tariffs.

Despite limited evidence of meaningful progress, both Washington and Beijing showed signs of softening, with China exempting some U.S. goods from high tariffs. However, analysts remain skeptical. Carol Kong of Commonwealth Bank of Australia noted that chaotic U.S. tariff policies are damaging confidence, warning that a prolonged trade war is likely.

Meanwhile, the euro slipped 0.15% to $1.1404 but stayed on track for its strongest monthly gain against the dollar in nearly 15 years. Sterling hovered near a three-year high at $1.3427. Against a basket of currencies, the dollar steadied at 99.079.

Investors are bracing for key U.S. economic data this week, including Friday’s jobs report and core PCE inflation data. Weak data could further erode the dollar’s safe-haven appeal, with Kong suggesting the greenback is increasingly behaving like a risk currency.

The Canadian dollar held at C$1.3837 as voters awaited election results heavily influenced by Trump's tariff policies. The Australian dollar slipped 0.02% to $0.6431, while the New Zealand dollar fell 0.27% to $0.59635.