The U.S. dollar inched higher on Tuesday but remains on track for a steep monthly decline, pressured by persistent uncertainty surrounding tariffs and growing concerns about a potential slowdown in the U.S. economy.

As of 04:50 ET (08:50 GMT), the U.S. Dollar Index—which measures the greenback against a basket of six major currencies—rose 0.2% to 98.962, hovering near a three-year low. The index is poised for a monthly loss of approximately 4.6%, which would mark its worst performance since November 2022.

Tariff Headlines Continue to Drive Sentiment

The dollar found some support early Tuesday following a Wall Street Journal report suggesting that President Donald Trump’s administration is considering measures to soften the impact of its automotive tariffs. Nevertheless, investor sentiment remains cautious amid conflicting signals from the White House regarding trade negotiations.

U.S. Treasury Secretary Scott Bessent added to the uncertainty by suggesting that the responsibility for initiating tariff talks lies with China. The lack of a clear direction on trade policy has rattled global markets this month, weighing on the dollar by stoking fears of reduced U.S. growth, productivity, and competitiveness.

“The greenback should continue to be tossed around by tariff developments—which have lately been USD-positive—and by data that reveals the damage already inflicted on the U.S. economy,” noted analysts at ING in a client report.

Key Economic Data on the Horizon

Markets are bracing for a busy week of economic releases, culminating in Friday’s closely watched nonfarm payrolls report. In the lead-up, traders will also digest preliminary Q1 GDP figures, the core Personal Consumption Expenditures (PCE) index—the Federal Reserve’s preferred inflation metric—and the latest job openings data, due later Tuesday.

On balance, ING analysts added, “The risks are skewed to the downside for the dollar this week,” particularly if data underscores signs of economic strain.

Euro Eases Despite Improved Sentiment

In Europe, the euro edged lower, with EUR/USD slipping 0.2% to 1.1395, even as German consumer sentiment showed signs of recovery. The GfK consumer confidence index rose to -20.6 heading into May, improving from a revised -24.3 in April. While still in negative territory, the reading suggests a modest rebound in consumer morale.

However, comments from European Central Bank (ECB) board member Piero Cipollone weighed on the euro. Cipollone warned that an escalating global trade war could suppress both growth and inflation in the eurozone, potentially having a “decisively recessionary effect” on economies involved. His remarks reinforced expectations for another ECB rate cut in June, following the bank’s seventh reduction in the past year earlier this month.

“EUR/USD has dipped just below 1.140,” ING stated. “We may see some consolidation at current levels or even further downward pressure before U.S. data takes center stage. That said, we still believe the pair could retest the 1.150 level, even if the euro underperforms on the crosses.”

Pound Holds Near Highs

The British pound traded slightly lower, with GBP/USD down 0.1% at 1.3423, just shy of a three-year high. The dip came amid continued dollar weakness and lingering optimism over the U.K. economic outlook.

Yen Weakens Ahead of BOJ Decision

In Asia, the USD/JPY pair climbed 0.3% to 142.42, as the Japanese yen gave back recent gains in advance of the Bank of Japan’s upcoming policy decision. While the BOJ is widely expected to keep interest rates unchanged, markets are watching for any signs of further tightening, especially in light of recent upward pressure on Japanese inflation.

Chinese Yuan Gains Ahead of PMI Data

The USD/CNY pair slipped 0.4% to 7.2647, as traders awaited April’s Chinese Purchasing Managers’ Index (PMI) data, due Wednesday. The figures will be scrutinized for signs of resilience—or further weakness—in business activity amid ongoing Sino-U.S. trade tensions.

Canadian Dollar Flat After Election

The USD/CAD pair remained largely flat at 1.3841 following Canada’s federal election results. Prime Minister Mark Carney’s Liberal Party held onto power but failed to secure a majority government, leaving policy uncertainty largely intact.