Dollar Pulls Back as Markets Digest Tariff Developments; Aussie Rallies on RBA Hold
The U.S. dollar edged lower on Tuesday, reversing some of its strong overnight gains, as traders weighed the latest developments in President Donald Trump’s trade policies.
As of 04:10 ET (08:10 GMT), the U.S. Dollar Index—which measures the greenback against six major currencies—was down 0.2% at 96.910, after briefly reaching 97.280 the previous night.
Dollar Retreats After Trump’s Tariff Announcement
On Monday night, President Trump revealed in letters to 14 countries—including Japan and South Korea—that the U.S. would impose significantly higher tariffs on imports. He also signed an executive order shifting the deadline for trade agreements from July 9 to August 1. However, Trump noted the new date isn’t set in stone and said he’s open to alternative proposals if partners come forward.
ING analysts commented that markets appear to interpret these letters as part of an ongoing negotiation process, rather than final measures.
“The DXY is consolidating above 96.50, and we anticipate continued movement within the 96.50–98.00 range,” ING noted, adding that the upcoming U.S. CPI report for June could be a key factor, with expectations of rising inflation.
Euro Strengthens on Hopes for EU-US Trade Deal
The euro rose, with EUR/USD gaining 0.5% to 1.1761, fueled by optimism that the European Union could successfully reach a trade agreement with Washington. The EU was not among the nations targeted by the newly announced tariffs, and talks are reportedly ongoing, with a deal potentially within reach by Wednesday. EU Commission President Ursula von der Leyen and Trump had a “positive exchange,” according to a spokesperson.
ING suggested the EU’s sizable market of 450 million consumers strengthens its bargaining power. Reports indicate the U.S. may maintain its baseline 10% tariff on EU imports, with possible concessions for sectors like aviation and alcoholic beverages.
In economic news, German exports dropped more than expected in May, as demand from the U.S. waned following earlier frontloaded purchases ahead of anticipated tariffs. Exports declined 1.4% from April, worse than the projected 0.2% dip, with shipments to the U.S. falling 7.7%.
Pound Gains, Supported by Trade Deal and Hawkish BOE Outlook
GBP/USD rose 0.3% to 1.3642, remaining near last week’s high of 1.3787—the strongest since October 2021. The U.K., one of the few nations with an existing trade agreement, continues to experience high inflation, which is expected to keep the Bank of England on a relatively hawkish path.
Aussie Jumps as RBA Surprises Markets
In Asia, USD/JPY rose 0.1% to 146.10, with the yen stabilizing after falling nearly 1% overnight in reaction to Trump’s tariff letter to Japan, which takes effect August 1.
USD/CNY slipped 0.1% to 7.1715, while AUD/USD surged 0.7% to 0.6543 after the Reserve Bank of Australia (RBA) opted to keep interest rates unchanged, contrary to expectations for a cut.
The RBA said it would wait for more concrete signs of easing inflation and pointed to lingering global uncertainties, especially those related to U.S. trade actions. Although inflation in Australia has declined significantly from its 2022 highs, slightly stronger-than-anticipated CPI readings prompted the central bank to remain cautious.
