Dollar Holds Steady Amid Trade Uncertainty and Japan Election Aftermath

The U.S. dollar traded within a narrow range Tuesday, stabilizing after Monday’s dip as investors eyed trade negotiations ahead of the August 1 tariff deadline. With limited progress reported, U.S. Treasury Secretary Scott Bessent emphasized that the administration prioritizes deal quality over timing. While an extension remains possible, President Donald Trump will decide based on the productivity of ongoing talks.

The Japanese yen, which rose 1% on Monday following Japan’s upper house election, held most of its gains. The election result—while a setback for Prime Minister Shigeru Ishiba’s ruling coalition—was already priced in, keeping the broader market response subdued. The yen traded slightly lower at 147.65 in early Asia.

Analysts warn that growing political uncertainty in Japan could hinder trade deal progress with the U.S. and weigh on the yen. MUFG’s Lee Hardman noted that initial relief post-election may be short-lived due to complications in bilateral negotiations.

Elsewhere, market attention remains on the Federal Reserve amid concerns about its independence, as Trump continues pressuring Fed Chair Jerome Powell over rate decisions. Despite this, Capital Economics expects steady U.S. data and tariff-driven inflation to keep rates unchanged through 2026, supporting dollar strength in coming months.

The euro slipped 0.12% to $1.1684 ahead of a European Central Bank rate decision, while the pound dipped 0.03% to $1.3488. The dollar index edged up to 97.94 after Monday’s 0.6% decline.

Commodity-linked currencies also weakened slightly, with the Australian dollar at $0.6522 and the New Zealand dollar at $0.5960. Overall, lingering uncertainty over global tariffs and central bank policy continues to keep forex markets rangebound.