Yen gains vs dollar, euro ahead of US, China meeting

An employee counts Japanese yen notes as he sells a 'lucky bag' at a Bic Camera Inc. store on January 1, 2016 in Tokyo, Japan.
Tomohiro Ohsumi | Getty Images

The safe-haven yen rose to a one-week high against the dollar and a 4-1/2 month peak versus the euro on Tuesday, as investors grew cautious about a possibly contentious meeting between U.S. President Donald Trump and Chinese President Xi Jinping.

Trump vowed during his campaign to label China a currency manipulator on his first day in office.

While that has not happened, a CNBC report last week said the Trump administration was reviewing the scope of its power to penalize countries whose currencies it perceives as undervalued. The report provided no details about how that would be done.

Dollar down but not out: Expert

"In terms of U.S. trade policy and the Trump/Xi meeting, it's always difficult to know what components of FX the two will focus on or what specific measure they will be looking at in order to amp up the rhetoric on currency manipulator," said Brad Bechtel, managing director FX at Jefferies in New York.

He added that it was "unclear if it will even come up this week at all given it's more of a Treasury function to call these things than it is a presidential function."

Markets also reacted to a bombing on Monday in a St. Petersburg metro, had an eye on U.S. employment data this week and France's presidential election later this month.

What's driving the dollar?

In late morning trading, the dollar fell 0.4 percent to 110.49 , after earlier sliding to a one-week low of 110.27.

Tuesday's data was largely positive for the dollar. The U.S. trade deficit in February narrowed more than expected to $43.6 billion in February, a number that could boost first-quarter growth.

U.S. factory orders in February also rose 0.1 percent, expanding for a third straight month.

The euro, meanwhile, dropped against the yen, off 0.5 percent at 117.78 yen. Earlier, the euro fell as low as 117.43, the lowest since Nov. 22.

Japan's main Nikkei stock index, which tends to move inversely to the yen, closed down 0.9 percent to a 10-week low.

The fell to a three-week trough earlier and was last at $1.0657, down 0.1 percent.

Meanwhile, the Reserve Bank of Australia's decision to keep interest rates at a record low of 1.5 percent was a surprise. But the Aussie dollar fell after the RBA hinted it was not too
confident about domestic labor and inflation conditions.

The Aussie hit a three-week low of U$0.7545, having declined steadily over the past two weeks from a four-month high of U$0.7750.