The dollar index (DXY00) on Tuesday rose +0.094 (+0.10%). Sep euro-fx futures (E6U0) closed up +0.0002 (+0.01%), and EUR/USD (^EURUSD) fell -0.0004 (-0.03%). Sep yen futures (J6U0) closed down -0.64 (-0.67%), and USD/JPY (^USDJPY) rose +0.62 (+0.59%).

The dollar index on Tuesday recovered from early losses and posted modest gains. Stocks erased an early rally Tuesday and turned lower, which fueled liquidity demand for dollars. Also, a jump in T-note yields gave the dollar a boost after the 10-year T-note yield jumped to a 4-week high of 0.660%.

The dollar initially moved lower Tuesday as an early rally in stocks curbed the liquidity demand for the dollar. The dollar retreated Tuesday morning after U.S. stocks indexes jumped when President Trump hinted that he might use an executive order to cut the capital gains tax. Stocks also rose, and the dollar fell, due to falling Covid hospitalization rates in the U.S. after New York, California, and Texas all reported falling hospitalizations on Monday.

Ramped-up U.S./China tensions are also supportive of the dollar. Tensions intensified after the Trump administration in the U.S. Federal Register issued a new rule requiring imported goods produced in Hong Kong to be labeled as made in China as of Sep 25.

Tuesday's U.S. producer price data was hawkish for Fed policy and bullish for the dollar. The U.S. Jul core PPI rose +0.5% m/m and +0.3% y/y, stronger than expectations of +0.1% m/m and unch y/y, with the +0.5% m/m gain being the largest monthly increase in 1-3/4 years.

Comments Tuesday from Richmond Fed President Barkin were dovish for Fed policy and negative for the dollar when he said the U.S. is still in an economic downturn of historic proportions, and the recent rebound in economic activity is flattening out on resurgence of the Covid virus.

The Covid pandemic continues to negatively impact global economic growth and is dovish for Fed policy and negative for the dollar. Confirmed cases of Covid have risen above 20.281 million globally, with deaths exceeding 739,000.

EUR/USD on Tuesday gave up an early advance and finished little changed on dollar strength. EUR/US initially moved higher Tuesday morning after a gauge of German investor confidence unexpectedly improved. The German Aug ZEW expectations of economic growth index unexpectedly rose +12.2 to a 16-1/2 year high of 71.5, stronger than expectations of -3.5 to 55.8.

Higher bund yields are also supportive EUR/USD after the 10-year German bund yield jumped to a 2-week high Tuesday of -0.469%. Higher bund yields improve the euro's interest rate differentials.

USD/JPY on Tuesday climbed to a 2-week high as a jump in T-note yields boosted the dollar against the yen. Japanese economic data on Tuesday also undercut the yen and boosted USD/JPY after the Japan Jul eco watchers survey expectations index fell -8.0 to 36.0, weaker than consensus of no change at 44.0.

A supportive factor for the yen was Tuesday's comments from Japanese Finance Minister Aso, who said government stimulus measures are having some effect, and the economy is showing signs of recovery from the virus-induced recession. Also, higher Japanese government bond yields are negative for USD/JPY as the 10-year Japan JGB bond yield rose to a 3-1/2 week high Tuesday of 0.033%.