The US Dollar declined on Tuesday, while the Euro strengthened as stocks in Asia and Europe bounced back, fuelled by hopes that US President Donald Trump would engage in talks regarding his controversial tariffs that have shaken markets for the past three days.
Meanwhile, the Japanese Yen and Swiss Franc saw gains, reflecting ongoing demand for safe-haven assets as investors stay wary of the potential for a global recession.
Currencies have experienced significant volatility recently as investors assessed which assets offer safety during the market sell-off and which economies may be most affected, Reuters reports.
On Tuesday, the Euro was up 0.3% at $1.0931, after earlier rising more than 0.7%, following a decline over the previous two days.
Currencies that typically perform well when stock markets are on the rise also made a recovery, with the Pound rising 0.2% and the Australian Dollar gaining 1.1% after both had dropped in the previous two sessions.
“Sentiment is rebounding, perhaps on the view that Trump may focus protectionism on China and speed up trade deals elsewhere. Markets may be erring on the optimistic side though,” according to Francesco Pesole, ING currency strategist.
On Tuesday, investors took some positive cues from the Trump administration regarding tariff talks. Treasury Secretary Scott Bessent expressed hope on Monday that negotiations would lead to a reduction in tariffs.
In addition, President Trump announced that Japan would be sending a team to begin discussions, which helped Japanese equities experience a strong rally overnight.
However, China remained firm and criticised the US for what it called “blackmail” in response to President Trump’s threat of an additional 50% tariff on Chinese goods following China’s initial retaliation. Meanwhile, the European Union proposed 25% counter-tariffs on US goods.
At the time of writing the Dollar was down 0.4% against the Japanese Yen, traditionally viewed as a safe-haven during market turmoil, at 147.28 Yen to the Dollar. The greenback had hit a six-month low against the Yen on Friday.
Meanwhile, the Dollar index, which tracks the currency against six major peers, was down 0.3% at 103.11.
It has declined around 0.7% since Trump announced the tariffs on 2nd April, as investors have weighed the potential impact on the US economy against the Dollar’s usual role as a safe-haven during market downturns.
“The current volatility is entirely the result of the policy choices of the Trump administration, meaning that, if reversed, the impact on financial markets will likely reverse as well,” stated Nathan Lim, chief investment officer at Lonsec Investment Solutions.