Market sentiment turns negative as Trump administration dealt another blow.
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The dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, touched its lowest since September 2016 at 94.50 in overnight trade. It was last at 94.55 in early U.S. hours, down 0.4%.
USD/JPY fell to 111.99, a level not seen since June 30, before bouncing back to around 112.30, while the EUR/USD rose to 1.1545, its highest level since May 2016.
Fading expectations for another rate hike by the Federal Reserve this year further weighed on the greenback. Futures traders are pricing in less than a 40% chance of a rate hike by December.
Global stock markets were mostly lower, pulled down by another setback to U.S. President Donald Trump's agenda.
Asian shares stepped back from more than two-year highs, with Japanese stocks falling in reaction to a stronger yen, while Chinese stocks stabilized after Monday’s slump.
In Europe, markets edged lower, with Germany's DAX down around 0.5%, following disappointing results from bluechips Ericsson and Lufthansa.
On Wall Street, U.S. futures pointed to a flat open ahead of the release of key earnings reports.
In the U.K., consumer prices rose by 2.6% compared with a year earlier, the Office for National Statistics said, down from a nearly four-year high of 2.9% in May. Economists had expected the rate to remain unchanged in June.
The fall was the sharpest between any two months since February 2015, largely reflecting a fall in global oil prices, and there were signs of slowing price pressure in factories.
Market sentiment took a hit after a second attempt by Republicans to replace Obamacare collapsed, delivering a major policy blow to the Trump administration.
Republican Senators Jerry Moran and Mike Lee announced their opposition to a revised Republican healthcare bill late on Monday.
In response, President Donald Trump said on Twitter that Congress should immediately repeal Obamacare and "start from a clean slate" on a new healthcare plan.
Meanwhile, Republicans in the U.S. House of Representatives took a first step toward tax reform, with the release of a fiscal 2018 budget plan that would allow a tax reform package to pass the U.S. Congress without support from Democrats.
Market participants continue to keep an eye on the quarterly reporting season with the focus Tuesday on earnings from Goldman Sachs and Bank of America out before the market open.
Johnson & Johnson, UnitedHealth, Charles Schwab, Harley-Davison and Lockheed Martin are also scheduled to report before the opening bell.
IBM, CSX, United Continental and Pinnacle Financial report after the closing bell.
Netflix earnings will also be in focus, after its stock jumped more than 10% in after-hours trading Monday after the company posted a surprisingly large increase in subscribers.