The dollar traded in a tight range on Tuesday after a brief fall at the start of the week, as investors watched out for any progress on trade talks ahead of an August 1 deadline for countries to strike deals with the U.S. or face steep tariffs.

The yen mostly held to gains from the previous session following results from a weekend upper house election in Japan that proved no worse than what had already been priced in, as focus now turns to how quickly Tokyo can strike a trade deal with Washington and Prime Minister Shigeru Ishiba's future at the helm.

The Japanese currency was last a touch weaker at 147.65 in early Asia trade, after rising 1% on Monday in the wake of the election outcome.

The bruising defeat suffered by Ishiba and his ruling coalition also drew just a modest response in the broader Japanese market, which returned from a holiday in the previous session.

"The initial relief for the yen that the ruling coalition did not lose even more seats and that Prime Minister Ishiba plans to hang on to power is likely to prove short-lived," said MUFG senior currency analyst Lee Hardman.

"The pick-up in political uncertainty in Japan could complicate reaching a timely trade deal with the U.S., posing downside risks for Japan's economy and the yen."

With just slightly over a week to go before an August 1 deadline on tariffs, U.S. Treasury Secretary Scott Bessent said on Monday that the administration is more concerned with the quality of trade agreements than their timing.

Asked whether the deadline could be extended for countries engaged in productive talks with Washington, Bessent said President Donald Trump would make that decision.

Uncertainty over the eventual state of tariffs globally has been a huge overhang for the foreign exchange market, leaving currencies trading in a tight range for the most part, even as stocks on Wall Street have scaled fresh highs.

"Nothing that happens on August 1 is necessarily permanent, so long as the U.S. administration remains willing to talk, as was indicated in Trump's letters from two weeks ago," said Thierry Wizman, global FX and rates strategist at Macquarie Group.

The dollar was last steady after slipping in the previous session due in part to the yen's rise and a dip in U.S. Treasury yields, leaving sterling trading 0.03% lower at $1.3488.

The euro fell 0.12% to $1.1684, with focus also on a rate decision by the European Central Bank later this week, where expectations are for policymakers to stand pat on rates.

The European Union is exploring a broader set of possible counter measures against the United States as prospects for an acceptable trade agreement with Washington fade, according to EU diplomats.

Against a basket of currencies, the dollar rose slightly to 97.94, after having fallen 0.6% on Monday.

Also weighing on investors' minds has been worries about the Federal Reserve's independence, given Trump has railed repeatedly against Chair Jerome Powell and urged him to resign because of the central bank's reluctance to cut interest rates.

"Our base case remains that solid U.S. data and a tariff driven rebound in inflation will keep the FOMC on hold into 2026, and that the resulting shift in interest rate differentials will drive a continued rebound in the dollar in the next few months," said Jonas Goltermann, deputy chief markets economist at Capital Economics.

"But that view is clearly at the mercy of the White House's whims."

Elsewhere, the Australian dollar eased 0.05% to $0.6522, while the New Zealand dollar fell 0.14% to $0.5960.

Source: Reuters