The U.S. dollar softened Tuesday as rising trade tensions fueled market uncertainty. President Trump’s proposed tariffs on Canada and Mexico triggered sharp pushback, with Trudeau calling the tariffs "very dumb," while Mexico also criticized the move. Treasury yields declined further, with the 2-year yield hitting a five-month low, reflecting increased concerns over the Fed’s policy direction and economic outlook.

Euro Rallies on Stimulus Hopes, Diplomatic Progress

EUR/USD surged nearly 1%, breaking above its 100-day moving average as optimism rose around European fiscal stimulus plans and improved Ukraine diplomacy. President Zelenskiy’s conciliatory tone toward Trump supported euro sentiment. However, market caution remains ahead of expected ECB rate cuts and potential EU tariff actions.

Sterling Gains Toward Key Resistance

GBP/USD advanced toward the critical 200-day moving average, supported by expectations of increased U.K. fiscal spending and easing tariff fears. Gains remain cautious amid uncertainty about the Bank of England’s monetary policy direction, with traders closely watching upcoming U.K. PMI data.

Yen Strengthens on Safe-Haven Demand

USD/JPY fell toward the 150 mark amid declining Treasury yields and equity weakness. Japan’s yen gained as investors sought safety, driven by geopolitical concerns. Traders await BoJ commentary to gauge future policy moves.

Equities Fall, Commodities Mixed Amid Risk-Off Tone

The S&P 500 fell more than 1%, led lower by energy and tech stocks. Treasury yields dropped, with the 2-year hitting a five-month low. Gold rallied strongly due to safe-haven buying, while oil declined modestly amid growth worries. Copper dipped on tariff and China-demand concerns.

Market Outlook: Cautious Sentiment Ahead

Investors remain wary as trade disputes and central bank signals continue to drive volatility. Upcoming U.S. GDP, durable goods data, and ECB decisions will shape near-term sentiment.