NEW YORK (Reuters) - The dollar rose on Tuesday, led by gains against the yen and Swiss franc, as risk appetite improved and Wall Street’s main indexes advanced, helping the currency stabilize after sharp declines the previous day.
The outlook for the dollar, however, remains murky due to global trade tensions. The greenback has lost 2 percent in the year so far.
“At the moment, support from high expectations for further monetary policy tightening from the Federal Reserve has been offset by ongoing political pressures and global trade uncertainties,” Fawad Razaqzada, market analyst at Forex.com in London, said.
China on Sunday announced tariffs on $3 billion in imports of U.S. food and other goods in response to U.S. tariffs on imports of aluminum and steel, a skirmish that investors fear is a prelude to a broader trade war.
The Trump administration is expected to announce this week U.S. tariffs on $50 billion to $60 billion in Chinese imports. On Tuesday China’s ambassador to the United States said Beijing will take counter-measures of the “same proportion” and scale if Washington imposes further tariffs.
In mid-morning trading, the dollar rose 0.2 percent against a basket of currencies to 90.218 .DXY.
Analysts said investors were also focused on U.S. payrolls data and comments by Fed Chairman Jerome Powell at the end of the week, which should help determine the short-term direction of the dollar.
Against the yen, which tends to benefit in times of economic uncertainty, the dollar snapped three days of losses to trade 0.5 percent higher at 106.43 yen JPY=.Traders though are still betting on a stronger yen and a broadly weakened dollar if the trade tensions escalate.
“U.S. protectionist measures implicitly signal the administration’s desire for a weaker dollar – and such expectations are likely to be entrenched in FX markets until credibly broken,” said Viraj Patel, currency analyst at ING in London.
The dollar also advanced versus another safe haven, the Swiss franc, rising 0.3 percent to 0.9584 franc CHF=.
The euro tumbled after a survey showed the euro zone’s manufacturing boom faltered for a third month in March, although output remained robust.
The euro was last down 0.3 percent at $1.2258 EUR=.
The Australian dollar, meanwhile, rose 0.4 percent to US$0.7685 AUD versus the dollar, above a three-month low set last week. The currency reacted little to the Reserve Bank of Australia’s decision to keep its cash rate at a record low 1.5 percent as expected on Tuesday.
Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Tommy Wilkes in London; Editing by Susan Thomas