The U.S. dollar gained modestly on Tuesday, rebounding from recent declines tied to banking concerns as hopes of progress in upcoming U.S.–China trade talks improved market sentiment.
At 04:25 ET (08:25 GMT), the U.S. Dollar Index — which measures the greenback against six major currencies — was up 0.2% at 98.570, following its sharpest five-day decline since late July.
Dollar finds footing after banking worries ease
With U.S. equities extending their rebound, investor focus in FX markets has shifted away from fears about the health of the banking sector.
“Zions Bank’s earnings report was solid outside of the losses linked to fraud, even though scrutiny remains high on any other signs of credit stress in the system,” said ING analyst Francesco Pesole.
The dollar also drew support from weakness in the Japanese yen and from optimism that Donald Trump may reach a trade agreement with Xi Jinping during their scheduled meeting next week in South Korea.
Trade frictions between the world’s two largest economies have long weighed on global confidence, with disputes over tariffs, technology, and market access still unresolved.
Adding to the upbeat tone, White House economic adviser Kevin Hassett said the 20-day U.S. federal government shutdown could end this week.
“Not much is moving on U.S.-China trade tensions ahead of the end-of-month scheduled meeting between Trump and Xi,” added Pesole, “with the approach seemingly being a wait-and-see one mixed with some cautious optimism that Trump will get a deal out of China.”
Pound weakens on record borrowing figures
In currency markets, EUR/USD traded 0.2% lower at 1.1622, little helped by receding political risks in France.
“EUR/USD remains almost entirely driven by U.S. credit/equity sentiment: here, further stabilisation could take EUR/USD all the way to 1.160. Levels below that will be harder to justify unless the U.S. CPI on Friday comes in hotter than expected,” said Pesole.
GBP/USD also slipped 0.2% to 1.3383 after data showed that U.K. government borrowing in the first half of the fiscal year reached its second-highest level on record, surpassed only by the pandemic period.
Borrowing totaled £99.8 billion in the first six months, 13% higher than a year earlier and £7.2 billion above the forecast from Britain’s budget watchdog. Finance Minister Rachel Reeves is expected to outline new tax measures to balance the budget in November’s fiscal statement.
Yen softens as Takaichi wins leadership vote
USD/JPY climbed 0.3% to 151.14 after Sanae Takaichi, head of the Liberal Democratic Party (Japan), secured enough votes to become Japan’s next prime minister.
Takaichi, widely seen as fiscally accommodative, is expected to expand government spending and push for looser fiscal policies. She is also likely to oppose additional interest rate hikes by the Bank of Japan, which is set to meet next week.
Yuan holds firm, Aussie slides
USD/CNY dipped slightly to 7.1178, with the yuan supported by a series of stronger-than-expected midpoint fixes from the People’s Bank of China. Markets remain focused on further dialogue between Beijing and Washington after Trump struck a more conciliatory tone on trade.
Meanwhile, AUD/USD fell 0.4% to 0.6489, with the Australian dollar sliding even after Canberra signed a major critical minerals agreement with Washington.
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