Investing.com - The U.S. dollar edged higher Tuesday, but still remained on course for a hefty monthly fall on continued tariffs uncertainty as well as fears of an U.S. economic slowdown.
At 04:50 ET (08:50 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, climbed 0.2% to 98.962, wallowing near a three-year low.
The index is headed for its worst monthly fall since November 2022, down around 4.6%.
Key economic data due
The greenback has been helped early Tuesday by a report in the Wall Street Journal indicating that U.S. President Donald Trump’s administration will move to reduce the impact of his automotive tariffs.
The imposition of tariffs have roiled global markets this month, weighing heavily on the dollar as they have threatened U.S. growth, productivity and dynamism.
That said, confidence remains fragile, particularly after U.S.Treasury Secretary Scott Bessent suggested the onus was on China to start tariff negotiations - the latest in a slew of conflicting signals over progress on trade talks between the world’s two largest economies.
“The greenback should continue to be tossed around by tariff developments (which have been USD-positive of late) and evidence of the damage already done to the U.S. economy emerging from data,” said analysts at ING, in a note.
There are plenty of important data releases to digest this week, with Friday’s jobs report set to be key for markets.
Preliminary first-quarter growth figures and core PCE data - the Federal Reserve’s favoured inflation gauge - are also scheduled ahead of that, while U.S. jobs opening numbers are due later in the session.
“On balance, the risks are skewed to the downside for the dollar this week,” ING added.
Euro slips despite rising GfK sentiment index
In Europe, EUR/USD traded 0.2% lower to 1.1395, despite German consumer sentiment improving heading into May, with the GfK consumer sentiment index coming in at -20.6, remaining firmly in negative territory but up from a slightly revised -24.3 points the month before.
A global trade war could lower both economic growth and inflation in the eurozone and it could have an "unambiguously recessionary effect" on the countries involved, ECB board member Piero Cipollone said on Tuesday.
Cipollone’s remarks strengthened the case for a further ECB rate cut in June, and came after the central bank cut rates for the seventh time in a year earlier this month.
“EUR/USD has dropped back just below 1.140,” ING said. “We could see some stabilisation around these levels, or even some additional pressure on the pair before U.S. data comes into the equation later today. Ahead of that, we think risks are tilted to another leg higher and potentially re-testing 1.150 in EUR/USD, even if the euro may not shine in the crosses.”
GBP/USD edged 0.1% lower to 1.3423, trading just below a three-year high on prolonged dollar weakness.
Yen slips ahead of BOJ meeting
Elsewhere, USD/JPY traded 0.3% higher to 142.42, with the Japanese yen giving up more of its recent gains ahead of the latest Bank of Japan policy-setting meeting.
The BOJ is expected to keep rates unchanged amid heightened economic uncertainty, but the policymakers could still signal further monetary tightening, especially as Japanese inflation rose sharply in recent months.
USD/CNY fell 0.4% to 7.2647 ahead of Wednesday’s Chinese purchasing managers index data for April, which is set to offer more cues on business activity in the face of the Sino-U.S. trade war.
USD/CAD traded largely unchanged at 1.3841 after Prime Minister Mark Carney’s Liberals retained power in the country’s election on Monday, but fell short of the majority government.