Dollar eases as US-China trade optimism wanes, economic headwinds rise

NEW YORK: 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.

JPMorgan's gauge of global manufacturing fell to its weakest in almost seven years, showing contraction for the second month in a row, while Morgan Stanley's surveys showed world manufacturing shrinking for the first time since 2016.

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 global investor spotlight will move to data on US non-farm payrolls on Friday, which economists expect to have risen by 160,000 in June, compared with a 75,000 increase in May.

EURO BOUNCES

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.

With volatility subdued - for example, an index measuring broad currency moves is near a record low - and central banks in easing mode, markets are ultra sensitive to any slight tweak in policy settings.

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.

It said it would lower rates again "if needed," a phrase some analysts took to mean that an additional rate cut was less likely than previously thought.