The dollar slipped to a one-week low on Tuesday against a basket of currencies as traders piled back into riskier currencies after an agreement between North and South Korea to hold direct talks.
The dollar had already been weakening on worries about a trade war due to U.S. President Donald Trump's proposed tariffs last week on imported steel and aluminium. The currency, seen as a safe-haven against risk in recent months, fell further after news of the North and South Korea talks as investors bought the Australian and New Zealand dollars and emerging market currencies.
"It's too early to wholeheartedly buy these currencies because of the chances of escalating trade tension between U.S. and its trading partners," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
North and South Korea, still technically at war but enjoying easing tension since the Winter Olympics in the South last month, will hold their first summit in more than a decade next month, South Korea said on Tuesday. It also said North Korea is willing to hold talks with the United States on denuclearization and will suspend nuclear tests while those talks are underway. Trump said he saw "possible progress" but warned of "false hope" in these efforts
This offset worries about Trump's proposed levies, which have prompted protests from U.S. trading partners. Trump's fellow Republican lawmakers stepped up their calls for a pullback from the tariffs.