The U.S. dollar advanced modestly on Tuesday, supported by stronger-than-expected economic data that signaled resilience in the country’s services sector, helping to reverse gains in several Asian currencies that surged on trade optimism.
A broad-based measure of the dollar rose 0.2% after the Institute for Supply Management (ISM) reported that activity among U.S. service providers accelerated in April.
The ISM non-manufacturing Purchasing Managers Index (PMI) climbed to 51.6, up from 50.8 in March, beating economists’ expectations of a decline to 50.2.
The latest data underscores a divergence in U.S. economic performance, with the services sector maintaining moderate expansion even as manufacturing shows signs of contraction amid ongoing tariff pressures.
In the currency market, the Taiwanese dollar retreated by 0.1%, easing from Monday’s sharpest rally since the 1980s. The yen also weakened slightly.
The pullback comes as central banks in Asia take measures to contain the impact of U.S. trade dynamics on local currency appreciation.
“The dollar’s recovery reflects both stronger services data and some retracement in recent overextended moves in Asia’s currencies,” said Rodrigo Catril, strategist at National Australia Bank in Sydney. “Forex markets, especially in Asia, are entering a holding pattern ahead of new guidance from the Federal Reserve and any fresh developments on trade.”
The U.S. Federal Reserve is expected to maintain its current interest rate stance when it concludes its policy meeting on Wednesday. While trade-related volatility has led some market participants to speculate on potential rate cuts, strong consumer spending and employment data have reinforced expectations that the Fed will remain on the sidelines.
The dollar’s modest rebound also coincided with movements in other asset classes. Oil prices climbed from a four-year low as bargain hunters stepped in, while gold rose 0.8%, supported by continued Chinese demand.
In equities, S&P 500 futures dropped 0.4% after the index ended its longest rally in nearly two decades. Contracts tied to European stocks also pointed to mild losses, tracking declines in Asian equities amid renewed caution.
The return of Chinese investors to the market after a five-day holiday added to market complexity. China, the world’s largest exporter and a major importer of U.S. goods, plays a central role in ongoing trade negotiations and currency flows.
A sharp inversion in Taiwan dollar forward contracts earlier this week signaled heavy hedging activity and expectations of further downward pressure on the U.S. dollar in Asia.
On Monday, the spread between the spot rate and the one-year non-deliverable forward (NDF) for the Taiwan dollar widened to 3,000 pips — the most in more than two decades.
Market participants attributed the spike to exporters liquidating their dollar holdings and insurance companies rebalancing their portfolios.
In corporate news, Ford Motor Company withdrew its financial guidance, citing expected losses from auto tariffs.
Palantir Technologies Inc. saw its shares fall more than 9% in extended trading after reporting earnings that fell short of investor expectations.
Royal Philips NV also revised its profitability outlook downward, citing escalating trade friction.
The combination of strong U.S. economic indicators, shifting central bank policy expectations, and heightened trade uncertainty continues to drive volatility across global markets.
“The uncertainty around tariffs and trade deals remains elevated, but as long as the U.S. consumer and services sector hold up, the Fed will stay cautious,” said Greg McBride, Chief Financial Analyst at Bankrate. “The dollar will reflect that push-pull dynamic in the near term.”
As markets await signals from both the Federal Reserve and the European Central Bank, investor focus will remain on trade negotiations, U.S. economic data, and geopolitical developments influencing currency and commodity markets.
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