The dollar has been a casualty of shaken confidence in the US as radical tariffs have been threatened, enforced and then suspended over a wild few weeks for world trade and markets.
The euro has had an overdue pullback from a surge to last week’s three-year high of US$1.1474.
However, by the Asia afternoon, it had found a footing and advanced 0.6% to US$1.1346 – sending the dollar index back below 100.
The Swiss franc, the largest gainer amongst G10 currencies since Donald Trump’s “Liberation Day” tariff announcement, was almost 1% stronger at 0.8184 per dollar.
The yen rose about 0.5% to 142.6 per dollar and is not far from a six-month peak.
Sterling struck a six-month high of US$1.3296 and has hardly missed a beat as Britain had been spared the most punitive US levies and US vice-president JD Vance has talked up prospects for a trade deal.
Talks beginning later today between Japan’s economy minister Ryosei Akazawa and treasury secretary Scott Bessent could have the largest bearing on foreign exchange markets as there is speculation the countries agree on a stronger yen.
Positioning, however, as of last week’s data, showed the largest net yen long on record stretching back to 1986, meaning there could be a heavy reversal if there are signs the talks do not go well.
British CPI data is due later in the day, along with US retail sales, an appearance from US Federal Reserve chairman Jerome Powell and a Bank of Canada meeting where markets are uncertain whether policymakers will cut or hold interest rates.
The Canadian dollar, firm at C$1.3934 per greenback and up 4% in April, is one of starkest examples of how heavily investors have punished the dollar in concern at erratic policymaking and a potential US recession.
A rate cut is priced at about a 40% chance.
The Australian and New Zealand dollars, which last week notched their largest weekly rises since 2020, were a little off recent peaks but holding the high ground with the Aussie at US$0.6350 and the kiwi at US$0.5917.
Markets made little immediate reaction to strong first-quarter growth and activity indicators from China.
Traders are looking to China’s yuan and the US bond market for the key to the broad direction of the dollar from here.
China has weakened the trading band of the yuan only slightly since the onslaught of tariffs that have topped 100%
The yuan was sold a little today, tracking a slight nudge weaker in the trading band.
The US Treasury market – ground zero for near-panic selling last week – has shown signs of steadying and is being watched for signals that a fairly tight correlation between yields and the dollar could resume after a dislocation.
“We think the restoration of the higher UST yield = stronger USD equation would be a major sign of normalisation,” said Standard Chartered’s head of G10 FX research, Steve Englander.
“We think the unwinding of growth pessimism, along with reduced prominence for tariff policy, could lead to renewed USD support,” Englander added.