The U.S. dollar pulled back in early Tuesday trading, paring gains made overnight after President Donald Trump escalated trade tensions with a new wave of tariff threats. Meanwhile, the Australian dollar rallied sharply after the country’s central bank defied expectations and kept interest rates unchanged.
As of 04:10 ET (08:10 GMT), the U.S. Dollar Index dipped 0.2% to 96.910, after touching an overnight high of 97.280.
Dollar Reverses as Markets Weigh Tariff Flexibility
The dollar had initially surged after President Trump revealed he had sent formal tariff notices to 14 countries, including Japan and South Korea, indicating 25% import duties would take effect starting August 1.
An accompanying executive order extended the original July 9 deadline for trade agreements, with Trump suggesting the date was “firm, but not 100% firm,” leaving room for negotiation.
Analysts at ING noted that markets are increasingly viewing the latest tariff developments as part of an extended negotiating strategy rather than a firm policy shift. They expect the Dollar Index (DXY) to trade within a 96.50–98.00 range, with the next major catalyst being June’s U.S. inflation data.
Euro Rises on Trade Hopes, Despite Weak German Exports
The euro (EUR/USD) climbed 0.5% to 1.1761, buoyed by optimism that the European Union could strike a favorable trade deal with Washington. The EU was notably excluded from the new tariff list, and a spokesperson for the European Commission said talks between Trump and Commission President Ursula von der Leyen had been constructive.
ING highlighted that the EU’s large consumer base may give it leverage in negotiations, potentially helping to maintain the current 10% U.S. tariff rate on European goods while securing exemptions for sensitive sectors like aerospace and beverages.
Despite the positive sentiment, data showed German exports fell by 1.4% in May, with shipments to the U.S. down 7.7% month-over-month, as previous frontloading of orders ahead of tariffs tapered off.
Sterling Steady on Hawkish BoE Expectations
The British pound (GBP/USD) gained 0.3% to 1.3642, continuing to hover near last week’s high of 1.3787, the strongest level since October 2021.
The U.K.’s early trade deal and persistent inflation pressures have helped support the pound, with the Bank of England expected to maintain a hawkish stance relative to other central banks.
Australian Dollar Soars as RBA Surprises with Rate Hold
In Asia, the Australian dollar (AUD/USD) jumped 0.7% to 0.6543 after the Reserve Bank of Australia left interest rates unchanged, against market expectations for a rate cut.
The RBA said it preferred to wait for more clarity on inflation trends and highlighted ongoing uncertainty tied to global risks, particularly new U.S. tariff measures.
While Australian inflation has declined significantly from its 2022 peak, the central bank pointed to recent data showing slightly firmer-than-expected CPI as justification for its cautious stance.
Elsewhere, USD/JPY edged up 0.1% to 146.10, as the yen stabilized following a sharp overnight drop. USD/CNY slipped 0.1% to 7.1715 amid broader trade uncertainty.
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