The dollar steadied on Tuesday as the market's focus shifted back to US trade policy as investors wagered US-led attacks on Syria would not escalate into a wider conflict in the Middle East. An index that tracks the dollar against a basket of six currencies steadied around 89.430 after a 0.4 percent fall on Monday, not far from its two-week low of 89.355 last week.
Against the yen, the dollar softened to 107.04 yen, off its seven-week high of 107.78 yen touched on Friday as traders braced for a meeting between US President Donald Trump and Japanese Prime Minister Shinzo Abe on Tuesday and Wednesday. Tokyo is eager to avoid being pushed into talks on a two-way free trade agreement aimed not only at market access but at monetary and currency policies.
But traders suspect Washington could put pressure on Japan after the US Treasury's semi-annual currency report published on Friday kept Japan on a monitoring list for possible manipulation. Trump himself also accused Russia and China on Monday of devaluing their currencies, triggering selling in the dollar, even as the rouble's dive this month was set off by US sanctions while the yuan has been strengthening in recent months.
"His comments seem to tell us that at the bottom of his heart he wants a weaker dollar," said a trader at a US bank. The euro traded at $1.2380. It has been stuck in a tight range around $1.22-25 since late January.
As uncertainty on trade loomed large, markets showed a largely muted response to other economic news. US retail sales rebounded in March after three straight monthly declines as households boosted purchases of motor vehicles and other big-ticket items
China's economy grew 6.8 percent in the first quarter of 2018 from a year earlier, official data showed on Tuesday, slightly above expectations and unchanged from the previous quarter. "Markets are focusing more on trade and political headlines than economic data. These days it is hard to tell in advance what will move markets. We just have to deal with whatever headlines that come out," said Shinichiro Kadota, senior FX strategist at Barclays in Tokyo.