Dollar clings on to gains from US-China trade pact

The dollar held strong gains on Tuesday as investors cheered a tariff deal between the United States and China to tap the brakes on a trade war between the world's two largest economies that had fed fears of a global recession.

Washington and Beijing on Monday announced an agreement to slash the massive tariffs they had imposed on each other for 90 days, sparking a relief rally across markets that swept up global stocks and sent the dollar surging.

"It's way better than the market was expecting," said Rodrigo Catril, senior FX strategist at National Australia Bank.

"It's just an indication of, for one, the US administration is quite sensitive to the impact (tariffs are) having on the economy, and some would say there's been a serious walk back in terms of what they've done."

Across currencies, the yen and the euro were among the largest losers against a resurgent dollar overnight.

The dollar was last down 0.1 per cent at 148.29 yen and fetching 0.8448 against the Swiss franc, after having jumped 2.1 per cent and 1.6 per cent, respectively, against the two in the previous session.

The euro was up 0.1 per cent at US$1.1095, having similarly tumbled 1.4 per cent on Monday.

"In terms of magnitude, I think it's fair to say that the big moves have been seen. But for scope for an extension of the moves, I think particularly the euro and the yen will have a bias for those moves to extend a little bit further over the coming weeks," said Catril.

Elsewhere, sterling was little changed at US$1.3178, having fallen 1 per cent on Monday.

The Australian dollar ticked up 0.04 per cent to US$0.6374 but remained not far from a two-week low. Likewise, the New Zealand dollar rose 0.08 per cent to US$0.5862, but was still pinned near a one-month trough.

Against a basket of currencies, the dollar hovered near a one-month high and was last at 101.67.

The de-escalation of US-China trade tensions has in turn led traders to pare back bets of Federal Reserve rate cuts, on the view that policymakers would be under less pressure to ease monetary policy to support growth.

US Treasury yields rose in tandem, with the two-year yield steadying near a one-month high at 3.9977 per cent, while the benchmark 10-year yield was last at 4.4551 per cent.

Futures show markets are now pricing in just about 56 basis points worth of Fed cuts by December.

"The Fed has been focused on the increase in uncertainty. This will remain the case, although the announcement may remove some of the downside risk that had been prevalent had the higher tariff rates remained in effect," said David Doyle, head of economics at Macquarie.

In cryptocurrencies, bitcoin last traded at US$102,590.75, after surging to its highest since January 31 in the previous session.

Ether eased 0.4 per cent to US$2,476.21, but was similarly not far from an over two-month high hit on Monday.

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