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Falling stocks depress US dollar against other safe havens

The U.S. dollar fell on Tuesday after Wall Street opened lower, spurring a risk-off move that benefited the safe-haven Japanese yen and Swiss franc against the greenback.

The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Compositeall fell more than 2 percent before recovering heading into the close. The indexes dragged down by disappointing earnings from industrial bellwethers Caterpillar Inc and 3M.

"The stock market has everyone's attention. The dollar/yen is moving almost tick-to-tick with stocks," said David Gilmore, partner at FX Analytics.

Although the dollar is also considered a safe-haven currency, weakness in U.S. markets will nevertheless disadvantage the greenback against other safe havens. The dollar fell against the by 0.33 percent, last trading at 112.43 yen. Against the Swiss franc the dollar was down 8 basis points, last at 0.995 francs.

"Markets are starting to wonder if the good times generated from Trump's tax cuts and deregulation are in the rear view mirror and what's ahead is fallout from protectionist policies, and that has started to eat into corporate earnings," said Gilmore.

The dollar index, a gauge of its value against six major currencies, fell 0.08 percent.

The euro fell after the European Commission rejected Italy's 2019 budget and said it will ask Rome to present a new document within three weeks, according to reports from Italian news agency AGI, citing EU sources.

The dispute over Italy's spending plans and doubts about the leadership of Britain's prime minister, who is mired in a stalemate over Brexit, has investors focusing on the likelihood of further political turmoil in Europe.

Worries about Italy's spending have bred some doubt about the European Central Bank's plan to raise interest rates next summer, and that too has hurt the euro. The single currency was down 9 basis points, last at $1.1473.

Britain's pound traded up in the European session before retracing those gains, last at $1.2987 after falling precipitously on Monday over fears that the Northern Ireland border issue and disagreements within Britain's ruling Conservatives over Brexit could cause Prime Minister Theresa May to face a serious leadership challenge.

"Whispers of a growing number of Tory MP rebels losing their patience with May have put the risks of a lengthy UK political impasse and a Brexit policy mistake (exiting the EU without a deal) back on the table," said Viraj Patel, a currency strategist at ING.

"We think this noise is likely to keep the pound on the back foot this week," he said.