(Alliance News) - The dollar was on the decline on Tuesday, while sterling recovered from the lows it fell to in the wake of poorly-received UK data.

Against the greenback, the euro rose to USD1.1687 on Tuesday, from USD1.1659 at the same time on Monday.

"The dollar has started to wobble, not from panic, but from a subtle change in the wind. Treasury yields are drifting lower again, but not in a way that signals a crisis—more like a quiet recalibration as traders consider the real cost of a tariff war that might not just affect China this time, but also stateside. EUR/USD's recent strength isn't so much a euro love story as it is a dollar divorce; safe-haven flows have lost their North Star, and instead of fleeing to the greenback, capital is dipping a toe in European waters—tentatively, but tellingly," SPI Asset Management analyst Stephen Innes commented.

Against the euro, sterling fell to EUR1.1530 on Tuesday from EUR1.1549 on Monday. Against the dollar, it rose slightly to USD1.3477 from USD1.3471.

Immediately after UK government borrowing data, sterling bought USD1.3469 and EUR1.1521.

According to the Office for National Statistics, public sector borrowing totalled GBP20.68 billion in June, exceeding an FXStreet-cited consensus for GBP15.6 billion and up from GBP17.44 billion in May.

It was the second-highest June borrowing since monthly records began in 1993, after that of June 2020, the ONS noted. It was also more than the GBP17.1 billion forecast by the Office for Budget Responsibility in March.

Data showed borrowing through the three months to June was GBP57.8 billion, up GBP7.5 billion from a year earlier, but in line with an estimate from the Office for Budget Responsibility.

Versus the yen, the dollar faded to JPY147.14 from JPY147.57.

UBS strategists Teck Leng Tan and Dominic Schnider commented: "With the USDJPY having pulled back to the mid-147 levels, the next few catalysts for the exchange rate would be US-Japan trade negotiations, news-flow around the successor of Fed Chair Jerome Powell, and whether Japanese PM Shigeru Ishiba would be pressured to resign and who might succeed him."

Japanese Prime Minister Shigeru Ishiba was clinging on at the start of the week even after his coalition disastrously lost its upper house majority, as painful new US tariffs loom.

The Liberal Democratic Party, which has governed almost continuously since 1955, and its partner Komeito had to win 50 seats in Sunday's election but they fell three short, national broadcaster NHK reported.

Voters angry at inflation turned to other parties, notably the "Japanese first" Sanseito, which made strong gains with its "anti-globalist" drive echoing the agenda of populist parties elsewhere.

US Treasury Secretary Scott Bessent said Tuesday that he did not see a reason for Federal Reserve Chair Jerome Powell to resign immediately, a day after calling for a review of the Fed.

"There's nothing that tells me he should step down right now," Bessent told Fox Business, although adding that if the central bank chief wanted to leave early, "he should."

Late Monday, Bessent called for the Fed to conduct an "exhaustive internal review of its non-monetary policy operations," accusing the central bank of "significant mission creep" in a social media post.

The US central bank has held interest rates steady this year as it monitors the effects of Trump's sweeping tariffs since returning to the White House – drawing ire from the president.

Against the Swiss franc, the dollar faded to CHF0.7980 from CHF0.7995.

Versus its Australian counterpart, the dollar edged down to AUD1.5326 from AUD1.5337. Against the Canadian dollar, the buck fell to CAD1.3681 from CAD1.3700.

By Eric Cunha, Alliance News news editor

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