The US dollar edged up slightly on Tuesday, stabilizing after recent losses in the banking sector as the prospect of upcoming trade talks between the US and China helped ease some concerns about a renewed trade war.
At 15:25 Saudi time, the dollar index, which tracks the greenback's performance against a basket of six other currencies, rose 0.2% to 98.570, after last week's biggest five-day decline since late July.
Dollar stabilizes after banking problems
Attention in foreign exchange markets shifted away from concerns about the state of the US banking sector as US stocks continued to rally on easing credit market concerns.
Zions Bank's earnings report was strong excluding fraud-related losses, though scrutiny remains high for any further signs of credit stress in the system, ING analyst Francesco Bisol said in a note.
The US dollar received support from the weakness of the Japanese yen, as well as expectations that US President Donald Trump will be able to reach a trade agreement with Chinese President Xi Jinping during a meeting between the two on the sidelines of an economic conference in South Korea next week.
Trade tensions between the world's two largest economies have weighed on global confidence, with disputes over tariffs, technology, and market access remaining largely unresolved.
Additionally, White House economic advisor Kevin Hassett said the 20-day US federal government shutdown is likely to end this week.
There isn't much movement on US-China trade tensions ahead of the scheduled meeting at the end of the month between Trump and Xi, Biswal added, as the approach appears to be one of wait and see with some cautious optimism that Trump will get a deal from China.
The pound is under pressure due to borrowing data.
In Europe, the EUR/USD pair fell 0.2% to 1.1622, not helped much by declining political uncertainty in France.
The EUR/USD pair remains almost entirely driven by US credit/equities sentiment: here, further stability could see EUR/USD reach 1.160. Levels below that will be harder to justify unless Friday's US CPI comes in higher than expected, said ING's Bisol.
The GBP/USD pair fell 0.2% to 1.3383, after data showed that UK borrowing in the first half of the financial year was the highest on record except during the peak of the coronavirus pandemic.
Government borrowing in the first six months of the tax year reached £99.8 billion, a 13% increase on the previous year and £7.2 billion more than the UK's budget watchdog had forecast.
Finance Minister Rachel Reeves is scheduled to announce the country's next budget in November, and is expected to announce new tax increases to balance the budget.
Takaichi wins prime minister's post
Elsewhere, the USD/JPY pair rose 0.3% to 151.14, with the Japanese yen under pressure after Sanae Takaichi, leader of the Liberal Democratic Party, secured enough votes to be elected the new prime minister.
Takaichi is widely viewed as a fiscal dove, and is expected to increase government spending and stimulate more flexible financial conditions in the country.
She is also expected to oppose further interest rate hikes by the Bank of Japan, which is scheduled to make a decision on the matter next week.
The USD/CNY pair fell slightly to 7.1178, with the Chinese yuan remaining somewhat bullish after a series of strong midpoint fixings by the People's Bank of China.
The focus remains on further dialogue between Beijing and Washington, after President Trump took a somewhat conciliatory tone regarding his trade threats against China.
The AUD/USD pair fell 0.4% to 0.6489, with the Australian dollar weakening even as Canberra signed a major vital minerals deal with Washington.
