The U.S. dollar bounced higher on Tuesday, rebounding from a lower start to the week, though the trade spat between the U.S. and its allies and partners continued to weigh.
“The global capital markets have stabilized today after yesterday’s rout in equities, softer yields, and U.S. dollar strength,” said a note from Brown Brothers Harriman.
The ICE U.S. Dollar Index DXY, +0.38% was up 0.4% at 94.609. With only four days left in the second quarter and first half of the year, the dollar gauge is on track to have gained 4.9% in the quarter and 2.7% since the beginning of the year.
The broader WSJ Dollar Index BUXX, +0.38% was up 0.3% at 87.98.
Trade tensions supported haven currencies like the Japanese yen USDJPY, +0.37% against the dollar earlier in the Tuesday session, before they also fell prey to the strengthening buck. The buck last fetched ¥109.94, up 0.2%, according to FactSet.
Late Monday, Trump trade adviser Peter Navarro denied the possibility of limiting investments from Chinese corporations in U.S. tech companies, which had been reported by The Wall Street Journal and led to an equities selloff. Early Tuesday, stock futures suggested the U.S. stock slide might not be over yet.
In the case of China, the yuan, both in its more restricted onshore USDCNY, +0.5271% and more freely traded offshore form USDCNH, +0.6497% continued to drop against the greenback, marking a fresh six-month low. One dollar last bought 6.5819 onshore yuan, up 0.6%, and 6.5918 offshore yuan, 0.8% up from Monday, according to FactSet.
“The rise in the offshore yuan dovetails with the pullback in the euro-dollar pair and the market remains dollar dips buyers ahead of Friday’s trade announcement,” wrote Mark McCormick, North American head of FX strategy at TD Securities.
Market participants have seen the yuan’s weakness over the past weeks as symptomatic of a general Asian emerging market selloff in response to the tariff talk on all sides, rather than intervention from the People’s Bank of China.
A weaker currency makes a country’s products cheaper and thus more attractive for global buyers.
Over the weekend, The Wall Street Journal reported that the PBOC indicated it would reduce the amount reserve banks are required to keep with the central bank, which in turn would free up some $100 billion and was seen as a signal of loosening policies that could weigh on the yuan.