The U.S. dollar edged higher on Tuesday, regaining some ground after last week’s sharp decline triggered by banking sector worries. Optimism around potential progress in upcoming trade talks between the U.S. and China offered additional support to the greenback.
At 04:25 ET (08:25 GMT), the U.S. Dollar Index — which tracks the dollar against six major peers — was up 0.2% at 98.570, after logging its steepest five-day drop since late July.
Dollar steadies as financial jitters ease
With U.S. equity markets extending their recovery, concerns about the health of the banking sector have eased, allowing FX markets to refocus on other drivers.
“Zions Bank’s earnings report was solid outside of the losses linked to fraud, even though scrutiny remains high on any other signs of credit stress in the system,” said ING analyst Francesco Pesole.
The dollar also benefited from weakness in the yen and growing confidence that Donald Trump and Xi Jinping could make progress on trade when they meet next week in South Korea.
Lingering tensions over tariffs, technology and market access have weighed on global markets for months, but Trump’s recent tone has raised hopes of some form of agreement. Meanwhile, White House economic adviser Kevin Hassett indicated that the 20-day U.S. government shutdown may end this week.
“Not much is moving on U.S.-China trade tensions ahead of the end-of-month scheduled meeting between Trump and Xi,” added Pesole, “with the approach seemingly being a wait-and-see one mixed with some cautious optimism that Trump will get a deal out of China.”
Pound weakens despite easing political risk
In currency trading, EUR/USD slipped 0.2% to 1.1622, showing little reaction to reduced political uncertainty in France.
“EUR/USD remains almost entirely driven by U.S. credit/equity sentiment: here, further stabilisation could take EUR/USD all the way to 1.160. Levels below that will be harder to justify unless the U.S. CPI on Friday comes in hotter than expected,” said Pesole.
GBP/USD also fell 0.2% to 1.3383 after official data revealed U.K. borrowing in the first six months of the fiscal year hit £99.8 billion — the highest outside of the pandemic period. The figure was 13% above last year’s level and exceeded forecasts by £7.2 billion. Finance Minister Rachel Reeves is expected to announce tax increases in November to stabilize public finances.
Yen dips as Takaichi becomes Japan’s next PM
USD/JPY climbed 0.3% to 151.14 after Sanae Takaichi, leader of the Liberal Democratic Party (Japan), secured the votes to become Japan’s new prime minister.
Takaichi is known for her fiscally dovish stance, which is expected to translate into higher public spending and a softer fiscal approach. She is also likely to resist additional rate hikes from the Bank of Japan, whose next policy meeting is scheduled for next week.
Yuan supported; Aussie dollar under pressure
USD/CNY edged down to 7.1178 as the yuan found support from stronger daily midpoint fixes by the People’s Bank of China. Market focus remains on the upcoming talks between Beijing and Washington after Trump struck a more conciliatory tone.
The Australian dollar weakened, with AUD/USD down 0.4% to 0.6489, despite Canberra signing a significant critical minerals deal with Washington — an agreement seen as strategically important for both nations.