The euro gained on Tuesday following a report that German political parties have agreed to form a coalition, while the U.S. dollar weakened against major currencies and China's offshore yuan hit a record low.

Germany's conservatives under chancellor-designate Friedrich Merz reached a deal on Tuesday with the center-left Social Democrats (SPD) to form a government, NTV reported. However, two people familiar with the matter denied to Reuters that a deal had been reached.

Investors have been focused on the trade dispute sparked by President Donald Trump's massive tariffs that have roiled markets for three days.

The euro was last up 0.52% at $1.0958 after falling for the previous two days.

However, the Japanese yen and Swiss franc continued to benefit from a safe-haven appetite for assets, as investors remained concerned about a potential global recession. Markets are bracing for a war of attrition between the U.S. and China. Beijing has refused to bow to what it called "blackmail" and vowed to "fight to the end" after Trump threatened to raise tariffs to as high as 104% in response to China's decision to match the "reciprocal" tariffs Trump announced last week.

Trump said Tuesday he was waiting to hear from China before imposing tariffs. U.S. Trade Representative Jamieson Greer told U.S. senators Tuesday that the Trump administration would not back down from its trade strategy anytime soon.

China's offshore yuan hit its lowest level since it began trading in 2010, at 7.3815 per dollar. The yuan was last down 1.05% against the greenback at 7.423 per dollar.

The dollar weakened 1% to 146.30 yen against the Japanese yen and fell 1.48% to 0.84780 franc against the Swiss franc.

Marvin Loh, senior global market strategist at State Street in Boston, said the dollar's ​​underperformance against other currencies was partly driven by recession fears in the face of tariffs.

Currencies that often perform well when stock markets rise also recovered, with the pound up 0.44%. The Australian dollar fell 0.36% after giving up early gains. Both currencies fell in the previous two sessions.

Investors on Tuesday got some positive signs from the Trump administration about tariff talks. Treasury Secretary Scott Bessent said Monday he hoped negotiations would lower levies. Trump said Japan was sending a team to begin negotiations, helping Japanese equities rally sharply overnight.

On Wall Street, all three major indexes ended lower on the session, clawing back early gains after falling sharply last week following Trump's tariff announcement. Japan's Nikkei (.N225) , opens a new tab , closed up 6.03% overnight in Asia. "If you look at it over the last week, the dollar and Treasury yields haven't really responded as aggressively as you would think given how the equity side has moved," Loh said.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.48% to 102.92. (Newsmaker23)

Source: Reuters