The U.S. dollar retreated in early Tuesday trading, trimming gains made overnight following President Donald Trump’s renewed tariff threats that initially boosted the greenback. Meanwhile, the Australian dollar jumped significantly after the Reserve Bank of Australia surprised markets by leaving interest rates unchanged.
By 04:10 ET (08:10 GMT), the U.S. Dollar Index slipped 0.2% to 96.910, down from an overnight peak of 97.280.
Dollar Reverses Course as Market Weighs Tariff Flexibility
The dollar had rallied earlier after Trump announced formal tariff notifications sent to 14 countries, including major trade partners Japan and South Korea, signaling 25% duties set to start on August 1.
An executive order extended the original July 9 deadline for imposing these tariffs, with Trump describing the new deadline as “firm, but not 100% firm,” indicating potential room for negotiation.
Analysts at ING commented that the markets increasingly view these tariff moves as part of a longer-term bargaining tactic rather than a fixed policy. They expect the Dollar Index to fluctuate between 96.50 and 98.00 ahead of key U.S. inflation data due next month.
Euro Gains on Trade Optimism Despite Soft German Export Data
The euro (EUR/USD) advanced 0.5% to 1.1761, lifted by hopes that the European Union will finalize a trade deal with the U.S. The EU was notably exempt from the latest tariff announcements, with a European Commission spokesperson describing talks between President Ursula von der Leyen and Trump as constructive.
ING analysts noted the EU’s large consumer market could provide leverage in talks, potentially preserving the current 10% tariff on European imports while securing exemptions for sensitive industries like aerospace and beverages.
Despite the upbeat sentiment, German export figures revealed a 1.4% decline in May, with shipments to the U.S. down 7.7% month-over-month as businesses wound down early orders made in anticipation of tariffs.
Sterling Holds Steady Amid Hawkish Bank of England Outlook
The British pound (GBP/USD) edged up 0.3% to 1.3642, maintaining a position near last week’s high of 1.3787, its strongest since October 2021. Expectations of a hawkish Bank of England policy, combined with an early U.K. trade deal and ongoing inflation pressures, have supported the currency.
Australian Dollar Climbs Following Surprise RBA Rate Decision
The Australian dollar (AUD/USD) jumped 0.7% to 0.6543 after the Reserve Bank of Australia unexpectedly kept interest rates steady, defying forecasts of a cut.
The RBA cited the need for clearer inflation data and ongoing global uncertainties, particularly related to the new U.S. tariffs, as reasons for maintaining its current stance.
Although Australian inflation has eased from its 2022 peak, recent data showing slightly firmer consumer prices justified the cautious approach.
Elsewhere, the Japanese yen (USD/JPY) gained 0.1% to 146.10 after stabilizing from an overnight dip, while the Chinese yuan (USD/CNY) slipped 0.1% to 7.1715 amid persistent trade concerns.