The dollar slipped from two-week highs on Tuesday, as optimism about easing trade tensions between the United States and China faded, even as US President Donald Trump turned his attention to the European Union with threats of additional tariffs. The Australian dollar, meanwhile, led all gainers on Tuesday after the Reserve Bank of Australia cut interest rates, as expected, but signalled a more balanced outlook.
Washington threatened to slap tariffs on $4 billion of additional EU goods, ramping up the pressure on Europe in a long-running dispute over aircraft subsidies. "Dollar gains stemming from trade developments are likely to come in fits and starts given that the outlook for a meaningful agreement remains elusive," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
Risky assets overall struggled to gain momentum after Monday's relief rally, with weak manufacturing surveys pointing to global economic headwinds. Against a basket of its rivals, the dollar was 0.1% lower at 96.70 and not far from a three-month low of 95.84 hit last week, as traders priced in aggressive interest rate cuts by the Federal Reserve of at least three times by the end of the year.
The euro got a brief boost after a media report said the European Central Bank was in no rush to cut interest rates at a July policy meeting. The single currency was last slightly up at $1.1289. Though central bank officials are divided on the timing of the next policy move, market gauges of interest rates have increased the odds of an ECB cut later this month, thanks to a global drop in bond yields. The Australian dollar was the sole spot of strength in the currency market, rising 0.4% to US$0.6995 after the RBA lowered interest rates by 25 basis points to a record low of 1.00%, matching economists' expectations.
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