The dollar was trading at five-week lows against a currency basket on Tuesday as hopes that a possible trade war between the U.S. and China could be averted revived risk appetite.
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, slid 0.1% to 88.55 by 03:11 AM ET (07:11 GMT), the lowest level since February 16.
Fears over the prospect of an all-out trade war between the U.S. and China eased following reports on Monday that the two sides were negotiating to resolve the issue behind the scenes.
Reports of talks eased concerns that trade tensions between the world’s two largest economies could escalate out of control and whetted investor appetite for riskier assets.
The traditional safe haven yen slid lower against the dollar, with USD/JPY rising 0.23% to 105.65, extending its rebound from Monday’s 16-month low of 104.62.
The yen showed little reaction after a former Japanese finance ministry official testified in parliament on Tuesday that Prime Minister Shinzo Abe, his wife or Finance Minister Taro Aso did not give instructions to change documents about a land deal at the center of a suspected cronyism scandal.
The controversy over the land deal has seen Abe’s popularity plunge, raising doubts over his ability to continue pursuing his Abenomics policies, which include aggressive monetary easing.
The euro was higher against the yen, with EUR/JPY rising 0.37% to 131.68 after ending Monday’s session with gains of 1.5%, the largest one-day percentage gain since June 2017.
The euro rose to five-week highs against the dollar, with EUR/USD up 0.18% to 1.2466.
Demand for the single currency continued to be underpinned after Jens Weidmann, Germany’s likely candidate to become the European Central Bank’s next president, said on Monday that market expectations of a rate hike towards the middle of next year were “not completely unrealistic.”
The pound was little changed against the dollar, with GBP/USD last at 1.4226.