The U.S. dollar bounced higher in the second half of Tuesday’s session, recovering from earlier weakness that came on the back of new tariffs being announced by China. Meanwhile, U.S. Treasury yields were also on the rise, hitting their highest since May for the 10-year bond.
Treasury yields and the dollar tend to move in tandem with each other, as the former expresses the market’s view of future interest rates, and the latter strengthens when interest rates rise. The 10-year government bond TMUBMUSD10Y, +0.00% yielded 3.048% on Tuesday, its highest yield since May 22, according to Dow Jones Data Group.
The ICE U.S. Dollar Index DXY, -0.19% , which tracks the currency against a basket of six major rivals, was last up 0.2% at 94.664. The dollar index steadied as the tone remains soft, nursing a 0.3% weekly loss and a 0.5% decline so far in September, according to FactSet.
Meanwhile, the U.S.-China trade fight intensified.
Trump on Monday said the U.S. would impose a 10% tariff on about $200 billion in Chinese goods and threatened to add hundreds of billions more. The 10% tax takes effect on Sept. 24 and will rise to 25% at the end of the year, administration officials said. Beijing responded by announcing retaliatory tariffs on $60 billion of American goods.
“We have now reached a level of affected imports where it will necessarily start to impact consumer prices” in the U.S.,” said Elsa Lignos, global head of FX strategy at RBC Capital Markets, in a note.
The timing of the dollar’s earlier pullback “has coincided with the rise in concern about how much Trump’s tariffs on China’s goods could slow productivity and growth in the U.S.,” said Jane Foley, senior FX strategist at Rabobank, in a note.
But the biggest impact from the tariffs is likely to be felt in China, she said, which will keep investors nervous and continue to underpin the dollar in the medium term.
The People’s Bank of China guided the yuan USDCNY, -0.0976% to a slightly softer fix versus the dollar overnight as traders attempt to discern how far Beijing will go in easing domestic policies to counter the strain over slowing growth, Foley said. The buck last bought 6.8606 yuan in Beijing trading, up 0.1%.
In the offshore market, the dollar fetched 6.8634 yuan USDCNH, -0.1035% down 0.1% versus late Monday in New York.
In other major currency pairs, the euro EURUSD, +0.1885% reversed previous gains, trading at $1.1663, compared with $1.1685, while the buck edged up 0.5% versus the Japanese currency USDJPY, +0.04% to fetch 112.38 yen, its highest since mid-July.