By Karen Brettell
NEW YORK (Reuters) – The dollar weakened against the yen and was steady against the euro on Tuesday as uncertainty around President Donald Trump’s planned tariffs kept traders cautious, following a rally in the U.S. currency a day earlier on optimism that he would be flexible in applying the import levies.
“The world’s trading a little bit more risk-off today (Tuesday) after a risk-forward day yesterday (Monday),” said Helen Given, FX trader at Monex USA, noting that Monday’s move “wasn’t really based on very much except for headlines.”
Trump said on Monday that not all of his threatened levies would be imposed on April 2 and some countries might get breaks.
The dollar has weakened on fears that tariffs will slow the U.S. economy and also reignite inflation. Rising optimism that the tariffs won’t be as bad as feared, however, has helped the greenback stabilize in the past few weeks.
A stronger-than-expected services component in S&P Global’s flash U.S. PMI figures on Monday helped to offset concerns that the U.S. economy is facing a near-term contraction.
But data on Tuesday showed that U.S. consumer confidence dropped for a fourth straight month in March, with households the most pessimistic about the future in 12 years.
“Households were expecting President Trump to lead with tax cuts and deregulation, but instead we have austerity and the prospect of significant trade tariffs. This is prompting anxiety about household finances and job prospects with the concern being this translates into weaker spending,” James Knightley, chief international economist, US at ING said in a note.
The dollar fell 0.58% to 149.81 Japanese yen after earlier reaching a three-week high of 150.94. The move in the interest rate sensitive currency pair came as U.S. Treasury yields were lower on the day.
Bank of Japan policymakers discussed the pace of raising interest rates further after deciding to hike short-term interest rates to the highest in 17 years, minutes of their January meeting showed on Tuesday.
Last week, the BOJ kept interest rates steady and warned of heightening global economic uncertainty, suggesting the timing of further rate hikes will depend largely on the fallout from U.S. tariffs.
The euro was little changed following a choppy trading session.
The single currency was earlier boosted by a survey showing that German business morale rose in March as companies expect a recovery after two years of contraction in Europe’s largest economy.
French central bank chief Francois Villeroy de Galhau, meanwhile, told a German newspaper that there is still room to lower European Central Bank interest rates further, and the 2.5% deposit rate could fall to 2% by the end of the summer.