FOREX-US dollar recovers on easing trade tension, prospect of tariff deals

By Gertrude Chavez-Dreyfuss and Stefano Rebaudo

NEW YORK/MILAN, April 29 (Reuters) - The U.S. dollar drifted higher on Tuesday, lifted by the Trump administration's plan to ease the impact of auto duties on local car manufacturers as well as the prospect of more tariff deals with some trading partners.

The U.S. government said it plans to alleviate some duties placed on foreign parts in domestically manufactured cars and keep tariffs on cars made abroad from stacking on other duties. White House Press Secretary Karoline Leavitt said President Donald Trump will sign an executive order on auto tariffs on Tuesday.

At the same time, the dollar got a boost from comments by U.S. Treasury Secretary Scott Bessent on Tuesday who said the administration is making substantial progress on tariff negotiations, noting that deals are forthcoming for India and South Korea. He said he will speak to at least 17 trade partners over the next few weeks.

In mid-morning trading, the dollar rose 0.2% against the yen to 142.22 JPY=EBS, rising in four of the last six sessions. On the month, however, the dollar has lost more than 5% of its value against the Japanese currency, on track for its biggest monthly fall since July 2024.

Analysts noted that the yen could strengthen further, as a global economic slowdown may prompt major central banks — including the Federal Reserve — to implement deeper rate cuts, narrowing yield differentials with Japan.

The dollar also gained against the euro, which slid 0.2% to $1.1395 EUR=EBS. But Europe's shared currency showed steep gains for April of 5.4%, on pace for its largest monthly gain since November 2022.

"Mean reversion is kicking in across currency markets with the Trump administration's softer tone on trade," said Karl Schamotta, chief market strategist at Corpay in Toronto.

He also cited "heavy month-end rebalancing flows" that are lifting the dollar against the yen.

WORRIED ABOUT MOUNTING US-CHINA TRADE WAR

Investors also fretted over a lack of progress in de-escalating the U.S.-China trade conflict.

Bessent said on Tuesday that over time, it will be evident to Beijing that Chinese tariffs are not sustainable for the world's second-largest economy, predicting that China could lose 10 million jobs quickly due to tariffs.

In a sign that China's hard stance on U.S. tariffs was easing, its government has waived the 125% tariff on ethane imports from the United States imposed earlier this month, two sources with knowledge of the matter said on Tuesday, among a group of products that have been granted exemptions.

Reuters reported last week that some pharmaceutical, aerospace and semiconductor products had also been granted tariff exemptions as Beijing tries to blunt the economic impact of its trade war with the United States.

In other currency pairs, the dollar advanced 0.3% against the Swiss franc CHF=EBS. For the month of April, however, the U.S. unit has fallen 7% so far, its heftiest monthly decline since January 2015.

Aside from trade, investors are also focused on this week's deluge of U.S. data.

"A week full of data releases may offer multiple opportunities to re-enter dollar shorts after some positioning rebalancing last week," said Francesco Pesole, forex strategist at ING, adding that the markets' focus is shifting to jobs data.

"It's labour market weakness that can trigger a swifter reaction by the Federal Reserve."

The latest U.S. jobs report will be a key driver for markets, along with preliminary first-quarter growth figures and core PCE data — the Fed's favoured inflation gauge.

Tuesday's data highlighted an economy that is modestly slowing down. U.S. job openings dropped sharply in March, but a decline in layoffs suggested that the labor market remained on solid footing despite an ever-shifting tariff policy casting a pall over the economy.

The Conference Board's U.S. consumer confidence index, on the other hand, sank to a nearly five-year low in April on tariff concerns.

In Canada, the loonie CAD= eased 0.2% to C$1.3856 per U.S. dollar, after Prime Minister Mark Carney's Liberals retained power in the election on Monday, but fell short of the majority government required to help him negotiate tariffs with Trump.

Elsewhere, the Aussie dollar AUD=D3 slumped 0.8% to US$0.6383 after hitting a more than four-month top of US$0.6450.