The dollar recouped some of its losses on Tuesday, supported by reports that the U.S. administration may ease planned tariffs, although investor caution lingered over whether a meaningful de-escalation in the U.S.-China trade conflict was in motion.

The administration of U.S. President Donald Trump is set to take steps on Tuesday to soften the impact of his automotive tariffs.

The United States and China in recent days seemed to have softened their respective stances, with Washington signalling openness to reducing tariffs and Beijing exempting some U.S. imports from its 125% levies.

Still, U.S. Treasury Secretary Scott Bessent said that it was up to China to de-escalate on tariffs - the latest in a slew of conflicting signals over progress on trade talks between the world's two largest economies.

The U.S. dollar index , a measure of the greenback's value relative to a basket of foreign currencies, strengthened 0.15% to 99.23 after falling 0.58% the previous day.

It remained on track for its biggest monthly drop since November 2022, as tariff tensions stoked fears of a global economic slowdown and undermined confidence in U.S. assets.

"Our data show persistent bond and equity outflows last week despite the recovery in U.S. asset prices," said George Saravelos, head of global forex research at Deutsche Bank.

"What we think matters for the dollar is what foreign investors are doing and, so far, based on our analysis the evidence is that they remain on a buyers' strike on U.S. assets," he added.

A buyers' strike occurs when investors refuse to purchase certain assets due to negative sentiment.

The euro was down 0.25% at $1.1393, but remained on track for its largest monthly gain against the dollar in more than two years as investors flee U.S. assets and search for alternatives in Europe.

"There are many structural factors that have supported the dollar in the past decades. I don't think they will get destroyed so easily," said Stephen Jen, chief executive officer and co-chief investment officer at Eurizon SLJ Capital.

"The euro-dollar can go higher to 1.20-1.25, but that has always been the fair value according to our calculations."

The greenback climbed 0.45% against the Swiss franc to 0.8237 and gained 0.33% to 142.46 yen , with trading subdued due to a holiday in Japan.

"Given the conflicting signals, I think a deal (between U.S. and China) is very unlikely in the near-term and China might be preparing for a protracted trade war," said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA).

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

Sterling hovered near a three-year top at $1.3399. Against a basket of currencies, the dollar steadied at 99.25, having fallen 0.6% in the previous session.

In Canada, the loonie eased 0.05% to C$1.3840, 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.

Source: Reuters