Dollar Slips as Trade Deal Optimism Wanes

Dollar Struggles as Trade Optimism Fades

The U.S. dollar faced renewed pressure on Tuesday as concerns over stalled trade negotiations grew. This dollar weakness amid trade deal uncertainty was amplified by the recent strength in Asian currencies. Their two-day rally, now taking a breather, emphasized how quickly sentiment can shift.

By midday, the dollar had fallen 0.5% against the Japanese yen to 142.99. It also weakened against the euro and pound, which rose to $1.1341 and $1.3328, respectively. Both recorded modest gains of around 0.2%.

Asian Currencies Rally and Capital Flows Shift

In foreign exchange markets, volatility continued. The Taiwan dollar had jumped sharply in the last two days before stabilizing on Tuesday. Analysts believe this surge reflects fading confidence in the dollar and a redirection of capital toward Asia.

Chris Weston, Head of Research at Pepperstone, explained that several Asian countries might be letting their currencies strengthen. This could be a strategic move to appeal to U.S. trade negotiators. Although Taiwan’s central bank denied such intentions, market skepticism remains.

Jane Foley, Head of FX Strategy at Rabobank, said, “The trade optimism that lifted markets last week is now losing steam.” She added that traders could soon shift their attention to corporate warnings about tariffs hurting global growth.

Delays in U.S. Trade Deals Impact Sentiment

Many had expected the U.S. to finalize new agreements to reduce tariff burdens. That belief helped support equities and the dollar in recent weeks. But with no concrete deals, and growing political uncertainty, investor sentiment is turning cautious.

The Chinese yuan also showed strength. The onshore rate rose 0.7% to 7.2212 per dollar after a long holiday. Its offshore counterpart held near a six-month high at 7.2135. These gains reflect both local momentum and a wider pivot by global investors toward Asian markets.

Euro Steady Despite German Political Shifts

In Europe, the euro remained resilient despite political developments in Germany. Conservative leader Friedrich Merz failed to secure parliamentary support to become chancellor. However, this had little impact on the currency, which remained supported by stable eurozone bond markets.

Central Banks Take the Spotlight

Global focus now shifts to monetary policy. The Federal Reserve is expected to hold interest rates steady this week. Yet analysts believe it may be the final “uncontroversial” decision for a while, with future guidance likely to gain importance.

In the UK, the Bank of England is projected to cut rates by 25 basis points. This move would respond to weaker domestic demand and uncertainty in global trade. Economists say the cut aims to protect the UK economy from further slowdown.

In contrast, central banks in Norway and Sweden are expected to keep rates unchanged. With inflation stable and economic conditions relatively calm, policymakers there prefer to wait.

Swiss National Bank Chairman Martin Schlegel confirmed that the SNB is prepared to act if needed. Measures may include direct intervention in currency markets or further rate cuts below zero to prevent deflation and excessive franc strength.

All Eyes on Trade and Policy

As markets brace for upcoming policy decisions and trade developments, the dollar remains under pressure. For now, dollar weakness amid trade deal uncertainty continues to shape global currency movements.