The United States Dollar is running up the score this morning after news broke overnight that the US and China have agreed to a 90-day reduction in tariffs on both sides
Overview
This landmark announcement, after a weekend of negotiations between the US and Chinese trade delegations in Geneva, constituted a much larger reduction of levies than the vast majority of experts thought to be possible, sending the Dollar soaring and global equities are following suit. Both the US and China will reduce their effective tariffs by 115%, bringing US rates down to 30% and China’s rates down to just 10%.
Both Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer spoke very positively of this weekend’s discussions, and Bessent in particular said the talks were “very robust and productive” while emphasizing that neither the US nor China wants to decouple from each other completely. Of course, a 90-day pause does not by any means constitute a longer-term trade deal, and this pause will no doubt bring with it three months of very intense negotiations between the world’s two largest economies. Markets, nonetheless, are breathing a huge sigh of relief and the Dollar is trading at or near its best levels in over a month since the Liberation Day announcement of tariffs around the world. Asian and European equities surged on the news, US treasuries fell, and gold prices tumbled more than three percent following the announcement in the early hours of Monday morning, a sure sign that a risk rally is well underway this morning. Haven currencies like CHF and JPY also fell dramatically, with JPY bearing the brunt of the losses. The reciprocal tariff rate on China is now 10%, in line with the rest of the world, and the symbolic nature of this is not lost on markets as effectively China is no longer being singled out.
The data calendar is quiet this morning around the world, but the US will release CPI data for April tomorrow, set to increase by 0.3% after March’s release showed prices actually fell. This reading does include any immediate shocks to inflation following April 2nd’s tariff spree, but the impact of any overshoot will likely be damped by this morning’s major trade breakthrough.
What to Watch This Week…
- US April CPI, Tuesday 8:30AM
- UK GDP, Thursday
- Banxico Interest Rate Decision, Thursday
- Monex USA Online is always open
The complete Economic Calendar can be found here.
EUR ⇓
The single currency has fallen more than a percent against USD this morning, at one point trading as much as 1.3% weaker on the Dollar following the US-China trade news. European Central Bank voting member Isabel Schnabel wrote in the Financial Times over the weekend there is a chance the ECB may be nearing the end of this easing cycle, citing the return of upside inflation risks, but markets remain unconvinced as many economists see the potential for inflation to undershoot the central bank’s 2% target by early 2026. US-China news, though, is without a doubt the biggest driver of EURUSD flows this morning.
JPY ⇓
Japanese Yen is the biggest loser on the G10 board this morning, sliding at one point just shy of 2% against the Buck. Risk sentiment has improved around the world quite dramatically since the US-China announcement overnight and the Yen’s traditional safe haven status has dragged it down this morning to its worst rate against USD since April 2nd’s Liberation Day tariff announcements. Japan, for its part, has said that it will not sign any trade deal with the US that does not include a reduction on auto and auto parts tariffs, placing the nation further away from its own deal
