After a turbulent March and April, the dollar was set to fall 7.7%, marking its biggest two-month drop since May 2002. Although the dollar index gained 0.25% to 99.28 on Tuesday, it followed a 0.58% plunge the previous day.
The euro, buoyed by Germany’s fiscal shift towards aggressive public spending, continued its climb, posting its biggest monthly gain against the dollar in over two years. Meanwhile, fears of a trade war intensified after President Trump’s tariff threats, prompting a rush into traditional safe havens like the yen, Swiss franc, and the euro itself.
Reports suggesting the Trump administration could ease planned automotive tariffs offered some relief, but investors remained wary amid conflicting signals over U.S.-China trade talks. Treasury Secretary Scott Bessent stressed that progress hinged on China’s willingness to de-escalate.
Despite the recovery in U.S. asset prices, data shows persistent bond and equity outflows, noted George Saravelos, head of forex research at Deutsche Bank. He added that the foreign investors remain on a buyers’ strike on U.S. assets, referencing ongoing negative sentiment.
In Tuesday trading, the dollar strengthened 0.70% against the Swiss franc and 0.50% versus the yen, though analysts warned that an extended economic slowdown could further boost the yen if global central banks, including the U.S. Federal Reserve, cut rates more aggressively.
Markets now turn to a series of crucial U.S. economic releases, including jobs data and inflation figures, with ING strategist Francesco Pesole suggesting that signs of labour market weakness could prompt faster action by the Fed.
Elsewhere, the Canadian dollar slipped slightly after Prime Minister Mark Carney’s Liberals won re-election but missed securing a majority, complicating tariff negotiations. The Australian dollar also pulled back after touching a four-month high earlier in the day.
