LONDON: The dollar fell on Tuesday on concerns about US-China trade tensions, although foreign exchange markets were largely unmoved and shrugged off what the dispute could mean for global growth.
Equity markets in the United States sold off heavily on Monday as investors fled technology shares and amid resurgent worries over a trade war.
The dollar had fallen versus the yen, which tends to benefit in times of economic uncertainty, for three straight days but that decline halted on Tuesday as currency investors pulled back from the Japanese currency.
Asian currencies like the Korean won, Taiwanese dollar, as well as the Australian dollar, which would all be expected to fall sharply if a trade war hit global growth, have all performed relatively well in recent days.
"The equity sell-off that we saw in the US was driven more by the tech sector than concerns about the trade wars. Currency markets are not in the epicentre of this sell-off," said Alvin Tan, FX Strategist at Societe Generale.
The yen fell 0.2 percent to 106.075 versus the dollar.
The greenback against a basket of currencies was down 0.2 percent at 89.913 while the euro rose 0.2 percent to $1.2324.
The euro held its gains even as a survey showed Italian manufacturing activity remaining relatively buoyant but slowed sharply in March for the second month running.
Higher-yielding currencies like the Canadian, New Zealand and Australian dollars all rose versus the dollar, suggesting the market was not too concerned for now about how the trade spat could undermine global economic growth.
The sell-off in US equities came after China imposed extra tariffs on US products, escalating a dispute between the world's two biggest economic powers.
Despite currency markets' limited moves, traders were still looking for a stronger Japanese yen if trade war tensions do escalate.
"It's going to be choppy, but given how fragile equity markets look right now, I think the clear trade is dollar/yen lower," said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore.
Investors' risk appetite is unlikely to recover quickly unless there is some easing in the US-China trade tensions, he added.
"I don't think people will be looking to put risk on too quickly until something positive develops on the trade front," Innes said.
The Trump administration is expected sometime this week to publish a list of Chinese goods that could be subjected to new US tariffs.
China's ambassador to the United States said Beijing will take counter-measures of the same proportion and scale if Washington imposes more tariffs on Chinese goods from a trade probe, state television reported on Tuesday.
Investors are also focused on US data this week, led by the non-farm payrolls report for March due on Friday.
The reports are expected to determine the path for future Federal Reserve interest rate increases.
Elsewhere, the Australian dollar was up 0.5 percent at $0.7695, clinging above a three-month low of $0.7643 set last week.
The Aussie's reaction to the Reserve Bank of Australia keeping its cash rate at a record low 1.5 percent on Tuesday was limited, as the decision was widely expected.
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