Investing.com - The US dollar slipped slightly lower Tuesday, handing back some of its recent gains after the Trump administration postponed some of its planned trade tariffs, even while confirming a trade war with China.
At 04:30 ET (09:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.5% lower to 108.310, having hit a three-week high during the previous session.
Dollar retreats after tariffs postponement
Worries about a protracted global trade war receded somewhat overnight following Trump's last-minute deals with Canada and Mexico.
Both Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum agreed to bolster border enforcement efforts in response to the US president's demand to crack down on immigration and drug smuggling, leading to a 30-day reprieve on 25% tariffs.
However, there was no reprieve for China, with US tariffs on Chinese goods coming into effect earlier in the session.
Beijing responded with tariffs to take effect Feb. 10 on things such as American cars, farm equipment and energy shipments.
“In a matter of hours, markets shifted from scrambling to assess the consequences of Trump’s huge protectionist move to aggressively buying the dips in previously affected currencies,” said analysts at ING, in a note.
“If markets were reluctant to fully price in the impact of tariffs until the very last minute, yesterday’s turnaround by Trump may well warrant even greater caution when it comes to future protectionism threats.”
Euro could still face further pain
In Europe, EUR/USD traded largely unchanged at 1.0345, after bouncing from its lowest level since November 2022 during the prior session.
While the single currency benefited from the postponement of the Canadian/Mexican levies, any gains for the euro are likely to be hard earned given the European Union is also finding itself in Washington's trade crosshairs.
“Sentiment in the eurozone has improved on the back of expectations that a deal can be struck and protectionism averted,” ING said, “ still, extra caution is warranted in this sense.”
“If part of Trump’s motive to delay tariffs on US neighbours was domestic backlash for potential immediate economic pain for US consumers, that is not necessarily true for EU tariffs. On those, Trump can afford to play the longer game, and perhaps keep them in place for a prolonged period, making the EU feel some “pain” before striking a deal.”
GBP/USD slipped 0.2% lower to 1.2433, with sterling edging lower after training most of its value even after the sharp move higher by the greenback during Monday’s session.
“The UK does not have much to lose from US tariffs. UK exports to the US are less than 2% of GDP and those to China less than 1%. Incidentally, Trump seems in no rush to hit the UK with tariffs, also considering its goods trade balance with the US is arguably negligible,” ING said.
That said, the Bank of England hosts a policy-setting meeting later this week, which could see the central bank cutting interest rates in order to stimulate the struggling economy.
Offshore yuan steadies
In Asia, USD/CNH traded 0.2% lower at 7.2944, with the offshore yuan steadying despite the imposition of 10% trade tariffs on China even after levies against Canada and Mexico were postponed.
President Trump is set to speak with Chinese President Xi Jinping as soon as this week, the White House said, potentially setting up a diplomatic deal that could avoid a greater trade war.
The yuan had been battered by concerns over a Sino-U.S. trade war akin to that seen in Trump’s first term.
USD/JPY traded 0.3% higher to 155.15, after falling sharply in overnight trade.