NEW YORK : The dollar fell on Tuesday, extending declines after a disappointing reading on U.S. consumer confidence and a drop in U.S. yields weighed, while optimism for more spending in Germany helped lift the euro.
The greenback extended declines after the Conference Board said its consumer confidence index dropped 7 points, its largest fall since August 2021, to 98.3, well short of the 102.5 estimate of economists polled by Reuters.
“The present situation index improved, but consumers are expecting dark skies ahead. Change can be scary, so it’s not surprising that confidence is falling,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
The dollar index, which measures the greenback against a basket of currencies, fell 0.51 per cent to 106.20, just off the two-month low of 106.12 hit on Monday, with the euro up 0.46 per cent at $1.0514.
Concerns have started to emerge about U.S. economic growth, and worries about inflation are growing as tariff deadlines by Trump on Canada and Mexico are set for next week. Investors also fear the labor market impact from actions taken by Elon Musk’s Department of Government Efficiency.
“There’s going to be a lot of back and forth on Trump’s initiatives, and certainly markets in general long term, don’t like tariffs,” said Joseph Trevisani, senior analyst at FXStreet in New York.
“There’s definitely nervousness out there because some of these things could go the wrong way, certainly inflation hasn’t shown any sign of further retreat.”
Reflecting the worries, the yield on benchmark U.S. 10-year notes fell 10.6 basis points to 4.287 per cent after hitting a 2-1/2 month low of 4.283 per cent.
After initial signs Germany may be able to move quickly, election winner Friedrich Merz on Tuesday ruled out a rapid reform to Germany’s state borrowing limits known as the “debt brake” and said it was too soon to say whether the outgoing parliament could wave through a massive military spending boost.
The developments in Germany also prompted Deutsche Bank’s head of FX research, George Saravelos, to revise on Tuesday his bearish view on the euro against the dollar to neutral. He had previously been bearish, despite the rally in Treasuries, because “the outcome of the German election was not conducive to a quick easing of the German fiscal stance”.
“We see the balance of risks as evenly distributed over the next few months,” he added.
A move higher by the dollar late on Monday against the Mexican peso and Canadian dollar after U.S. President Donald Trump said tariffs on Mexico and Canada would proceed as scheduled and go into effect next week was largely unwound on Tuesday, suggesting investors still view the threat of duties as a negotiating tool by Trump.
U.S. Treasury Secretary Scott Bessent argued on Tuesday the U.S. economy is more fragile under the surface than economic metrics suggest, citing interest rate volatility, sticky inflation and job growth focused on the government sector, while also saying that tariffs are an important source of revenue.
The Mexican peso strengthened 0.32 per cent versus the dollar at 20.414 although the Canadian dollar weakened 0.2 per cent versus the greenback to C$1.43.
Analysts at Goldman Sachs noted, “the risk remains that we see a repeat of Trump’s brinkmanship from last month, with choppy price action in those currencies are we approach March 4.”
Against the Japanese yen, the dollar weakened 0.75 per cent to 148.59 while Sterling strengthened 0.36 per cent to $1.2669.
British Prime Minister Keir Starmer said he would increase annual defense spending to 2.5 per cent of GDP by 2027 and target a 3 per cent level, last seen just after the Cold War, a signal to Trump that Britain can help boost Europe’s security.
In cryptocurrencies, bitcoin plummeted 8.13 per cent to $86,340.15 as tariffs and growth worries dented risk appetite.
