Investing.com - The dollar fell to more than one-week lows against a basket of the other major currencies on Tuesday as relief over the U.S.-China trade truce gave way to concerns that a full resolution to the trade conflict will be difficult to reach.
Optimism over a breakthrough in the trade war dimmed after statements on Monday by various Trump administration officials shed little light on the specifics of any Sino-U.S. trade agreement.
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was down 0.45% to 96.53 by 03:56 AM GMT (08:56 AM GMT), the lowest level since Nov. 23.
Moves in bond markets also pointed to concerns over the tentative ceasefire between Beijing and Washington.
Yields on 10-year U.S. Treasuries, which move inversely to prices, continued to tick lower after dropping below the 3% level on Monday, touching the lowest level since mid-September.
"Falling U.S. yields are a negative for the dollar, especially versus the major currencies," said Rodrigo Catril, senior currency strategist at NAB.
The curve between 3-year and 5-year notes inverted for the first time since 2007 on Monday.
The 2-year and 10-year yield curve is a key focus for investors as an inversion is seen as predictor of a U.S. recession. A yield curve is said to be inverted when yields on longer-dated maturity bonds are lower than shorter-dated bonds.
The yield curve has flattened as continuing interest rate hikes send short-dated yields higher, while longer-dated Treasury yields are kept down by tepid inflation and slowing global growth.
Catril added that U.S. Treasury yields are near crucial technical support levels, a break of which could add further pressure on U.S. yields and the dollar.
The dollar index rose to the highest levels of the year in early November boosted by expectations for a faster pace of rate hikes by the Federal Reserve as the U.S. economy remained robust.
But the dollar has come under pressure since comments by Fed Chairman Jerome Powell last week were interpreted by markets as an indication that the central bank could slow its program of rate hikes.
The Fed is widely expected to raise rates at its upcoming Dec. 18-19 meeting and has indicated that it could raise rates three times in 2019, but markets are currently pricing in just one rate hike next year.
The dollar fell to more than one-week lows against the yen, with USD/JPY down 0.62% 112.96.
The euro was higher against the softer dollar, with EUR/USD adding on 0.26% to trade at 1.1384.
The pound also gained ground, with GBP/USD rising 0.39% to 1.2772, after falling below the 1.27 level on Monday for the first time since Oct.31.
Sterling has posted losses for three consecutive weeks as traders bet that British Prime Minister Theresa May will not be able to pass her Brexit deal through parliament on Dec. 11.
-- Reuters contributed to this report
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