The dollar clung to modest gains against major currencies on Tuesday but remained rangebound as traders awaited U.S. debt ceiling talks and tried to digest how a host of conflicting economic data will influence monetary policy and global growth.
Chinese imports contracted sharply in April from a year earlier while exports grew more slowly than in March, which had a limited impact on currencies, but contributed to risk-off moves broadly across markets.
"Overnight, you get the China data ... which is undermining this ever-emerging narrative about the China rebound," said Alvise Marino, macro trading strategist at Credit Suisse in New York. "The uncertainty about the growth outlook is still very much an important part of the picture."
Closely-watched U.S. inflation data due on Wednesday is likely to set the tone for markets, after stronger-than-expected jobs data last week.
"The conversation about sticky inflation is very much prevalent in the market. The fact that the Fed may not be cutting interest rates this year, that is in line with our view," said Jane Foley, head of FX strategy at Rabobank in London. "That conversation brings us right up to that CPI data, and if the Fed is going to be data-dependent, well, this is going to be an important release. The market is watching the data."
Any Federal Reserve policy tweaks will have to be weighed against a backdrop of recent turmoil in the U.S. banking sector and a political impasse in Washington over lifting the country's debt ceiling and avoiding a default, analysts said.
The Fed's quarterly survey of bank loan officers released on Monday showed that credit conditions for U.S. businesses and households continued to tighten at the start of the year, most likely due to interest rate hikes.
The closely watched survey was among the first measures of sentiment in the banking sector since the recent run of bank failures, sparked by Silicon Valley Bank's collapse in March.
Against a basket of currencies, the U.S. dollar index edged up 0.3% to 101.64, but remained near recent lows as traders eye a peak in U.S. rates.
The euro dipped 0.41% to $1.0961.
Sterling was broadly flat and bought $1.262, ahead of Thursday's central bank policy meeting.
The Bank of England looks set to raise interest rates to 4.5%, as it tries to fight the highest inflation rate in Western Europe.
The Japanese yen was last seen trading at 135.20 per dollar, with Bank of Japan (BOJ) Governor Kazuo Ueda signaling that the central bank may end its yield curve control policy and start shrinking its balance sheet.