The US dollar softened on Tuesday after China’s response to the US tariff plan sparked renewed concerns over the global economic outlook. Investors shifted away from the greenback amid uncertainty surrounding the future of US-China trade relations, fueling demand for risk-sensitive currencies and safe-haven assets like the Japanese yen.
China’s reaction to the proposed tariffs suggested a measured but firm stance, with markets interpreting the move as a sign that tensions could escalate further. This development dampened appetite for the US dollar, which has traditionally served as a safe haven but has shown vulnerability amid shifting geopolitical risks and potential impacts on global growth.
Adding to the dollar’s weakness, US Treasury yields edged lower as investors sought refuge in bonds, reflecting broader risk aversion. The prospect of prolonged trade tensions raised speculation that the Federal Reserve might adopt a more dovish tone in its upcoming meetings, reducing the greenback’s appeal.
Meanwhile, major currencies like the euro and Australian dollar posted gains against the dollar, supported by improved sentiment in global equity markets and a rebound in commodity prices. Traders remain cautious, however, as they await further developments from both Washington and Beijing that could shift market dynamics.
For now, the US dollar faces headwinds, with its trajectory likely to be influenced by ongoing US-China trade negotiations, key economic data releases, and potential shifts in Federal Reserve policy. Unless tensions ease significantly, the greenback may remain under pressure in the near term.
