The dollar index rose toward 109 on Tuesday as the 10% US tariffs on imports from China took effect, marking the start of a trade war that could have significant economic repercussions.

China immediately retaliated by imposing its own tariffs on selected US exports, including oil, gas, coal, cars, and farm equipment, effective February 10. Markets are now weighing the potential impacts of these tariffs on growth and inflation, further clouding the outlook for Federal Reserve monetary policy.

Meanwhile, President Trump agreed late on Monday to "immediately pause" planned tariffs on Mexico and Canada for a month, following successful negotiations with their leaders.

Elsewhere, traders are closely watching Friday's nonfarm payrolls report, which is expected to offer more insight into the health of the labor market. The dollar saw the most significant appreciation against the Australian dollar and the New Zealand dollar, both of which are liquid proxies for the Chinese yuan.

Source:Trading Economics