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The euro recovered from previous losses on Tuesday, after Germany’s government managed to avert a full-blown political crisis, while the impending trade tariffs imposition of the world’s two biggest economies kept the US dollar under pressure.

Against the greenback, the euro inched up 0.20 percent to 1.662, after losing 0.45 percent overnight, while it climbed 0.02 percent to 129.08 against the safe-haven yen.

The British pound also increased 0.40 percent to 1.3199 against the dollar.  

The euro weakened after Interior Minister Horst Seehofer announced on Sunday his plans to quit as interior minister of the Christian Social Union (CSU), following a political standoff with Chancellor Angela Merkel over migration.   

The conflict that put the future of Germany’s government at risk was later resolved when Seehofer’s CSU party reached a deal with the Chancellor’s Christian Democratic Union (CDU), and the resignation threat was dropped.

Following hours of talks on Monday, Merkel agreed to tighten controls at the Austrian border to prevent people, who have applied for asylum in other European Union (EU) countries from entering Germany.

Senior strategist Shin Kadota said concerns toward the euro have faded for the time being, although the underlying immigration and refugee matter will continue to be a potential risk factor.

US Dollar Tumbles on Impending Trade Tariffs

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The US dollar, meanwhile, continued to tumble as concerns over trade tensions eased, but investor sentiment remained weak.

The US dollar index fell 0.30 percent to $94.31 against a basket of six major currencies, after rising by about 0.45 percent on Monday.

Against the yuan, the greenback was down 0.34 percent to 6.6457, as sentiment in Chinese markets turned fragile on the upcoming trade tariffs imposition, with the US government’s 25 percent tariffs on $34 billion worth of Chinese imports set to take effect on July 6.

China’s administration also intends to enforce a 25 percent duty on US products worth the same amount that same day.

In addition, US President Donald Trump is proceeding with plans to penalize the country’s major trading allies, including the EU, Mexico, and Canada, as part of his America First policy that several investors believed will harm global economic expansion.        

The greenback was up 0.19 percent to 110.69 against the yen, while it declined 0.19 percent to 1.3161 against the Canadian dollar.

The dollar also slipped 0.14 percent to 0.9922 against the Swiss franc.

Trade sensitive currencies, including the Australian and New Zealand dollars stood on positive territory, against their US counterpart on Tuesday, with the Aussie adding 0.82 percent to 0.7399 and the kiwi rising 0.48 percent to 0.6747.

The Australian dollar hit a 1-1/2-year low of 0.7311 on Monday, after the Reserve Bank of Australia left its interest rates untouched at 1.5 percent. The central bank has described the US trade policy as a source of doubt over the future of the global economy.

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