The dollar recovered against the yen and Swiss franc on Wednesday, bolstered by a rebound on Wall Street, as investors turned less pessimistic about the impact of China's move to slap tariffs on key U.S. imports in response to a similar measure from the United States.
Some analysts said the trade tension may not have as severe an impact on the dollar as initially thought. And if it ends up having an impact, it could be either a positive or negative factor for the greenback.
"There is a scenario that is dollar positive in that maybe the current account deficit is reduced or the Fed raises rates," Steven Englander, head of research and strategy at Rafiki Capital in New York, said.
"Normally that would be seen as dollar positive. But there is a dollar negative aspect in that perhaps the tariffs apply to some necessary components of the U.S. economy, and slow it down," he added.
In the midst of the U.S.-China trade tension, the dollar has weakened in three of the last five sessions against the yen, down more than 5 percent so far this year.
Against the Swiss franc, the greenback has fallen 1.4 percent so far in 2018. The Japanese and Swiss currencies tend to appreciate in times of geopolitical and economic stress.
China on Wednesday proposed tariffs on U.S. imports including soybeans, planes, cars, beef and chemicals. The Chinese plan came hours after Washington unveiled a detailed breakdown of some 1,300 Chinese industrial, transport and medical goods that could be subject to 25 percent duties.
The Chinese news dominated the market, overshadowing a U.S. employment report by payrolls processor ADP which showed a higher-than-expected 241,000 private sector jobs created last month.
"Admittedly, the ADP survey is not a great leading indicator for payrolls, not least because it is partly based on lagged changes in payrolls," said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto. "Nevertheless, to the extent it is useful, it points to a labor market still in exceptionally good health."
The greenback against a basket of major currencies, lost 0.08 percent to 90.13 in afternoon trading.
Against the , the greenback slid 0.12 percent against the to 106.72 yen.
In the aftermath of the Chinese tariffs, the yuan on Wednesday suffered its biggest one-day loss versus the dollar since mid-February, down 0.6 percent at 6.3094 yuan per dollar.
Against the greenback, the yuan last traded down 0.26 percent at $6.3045.
The Chinese currency had been strengthening this year, fueling speculation on whether Beijing can intervene in markets to limit its rise.