- Dollar index hits lowest since late April, euro touches six-week high
- U.S. manufacturing contracts for third month, impacting dollar performance
- Fiscal worries prompt 'sell America' theme, Senate debates tax bill
TOKYO/LONDON, June 3 (Reuters) - The dollar hovered near six-week lows on Tuesday, as mounting evidence of economic damage from the trade war waged by President Donald Trump's administration weighed on sentiment.
While global equity markets have broadly recovered in the wake of the on-again, off-again saga of Trump's tariff threats, the greenback remains firmly on the back foot. Factory and jobs data in the coming days may give further signs of the toll that trade uncertainty is wreaking on the world's biggest economy.
U.S. duties on imported steel and aluminium are set to double to 50% starting on Wednesday, the same day the Trump administration expects countries to submit their best offers in trade negotiations.
"What this whole dynamic is basically saying is trade tensions are not really improving in that regard, and we've seen the dollar getting hammered widely," said Rodrigo Catril, senior FX strategist at National Australia Bank. "Interestingly, the Aussie and the kiwi have been the good performers this time around."
The dollar index , which measures the U.S. currency against six others, touched 98.58, the lowest since late April, before rising 0.25%.
The dollar was up 0.1% against the yen at 142.81. The euro eased 0.15% to $1.1426, having briefly touched a six-week high of $1.1454. Later in the week, the focus will be on the European Central Bank's interest rate decision and subsequent outlook.
Preliminary euro zone inflation data for May is also on the docket. The expectation among economists is for the core rate, which excludes food, energy, alcohol and tobacco, to have run at a rate of 2.5%, from April's 2.7%.
The dollar sank broadly on Monday after data showed U.S. manufacturing contracted for a third month in May and tariff snarls meant suppliers took longer to deliver goods. Attention now turns to U.S. factory order numbers on Tuesday, followed by jobs data later in the week.
The dollar got some respite last week, rising 0.3% after trade talks with the European Union got back on track and a U.S. trade court blocked the bulk of Trump's tariffs. An appeals court reinstated the duties a day later, and Trump's administration said it had other avenues to implement them if it loses in court.
Trump and Chinese President Xi Jinping were likely to have a call soon to iron out trade differences, Treasury Secretary Scott Bessent said on Sunday, although Monday saw an from China's Commerce Ministry of U.S. accusations that Beijing violated their trade agreement.
"Trade developments remain crucial. Reports suggest China is gaining leverage over the U.S. through its control of chip supply chains and rare earths," ING strategist Francesco Pesole said.
"Trump and Xi Jinping are set to speak this week, and past direct talks have sometimes eased tensions. That leaves room for a positive surprise that could help the dollar at some point this week," he said.
Fiscal worries have also given rise to a broad "sell America" theme that has seen dollar assets from stocks to Treasury bonds dropping in recent months.
Those concerns come into sharp focus this week as the Senate starts considering the administration's tax cut and spending bill, estimated to add $3.8 trillion to the federal government's $36.2 trillion in debt over the next decade.
Reporting by Rocky Swift; Editing by Sonali Paul and Jacqueline Wong
Source: Reuters