- The US Dollar strengthens against most major currencies following news of a trade deal between the US and China.
- After two days of negotiations in Switzerland, both countries agreed to reduce tariffs for 90 days.
- As a result, the US Dollar Index rises to 101.65, buoyed by easing tensions between the two economic giants.
The US Dollar strengthened against most major currencies on Monday, driven by news of a breakthrough trade deal between the United States and China. Following two days of negotiations in Switzerland, both nations agreed to reduce tariffs for a 90-day period, providing a temporary pause in their ongoing trade war. As a result, the US Dollar Index (DXY), which measures the performance of the USD against six major currencies, rallied by over 1%, reaching 101.65 — its highest level in a month.
US Treasury Secretary Scott Bessent announced the agreement during a press conference in Switzerland, stating that China would lower its tariffs on US goods from 125% to 10%, while the US would cut tariffs on Chinese goods from 145% to 30%. Both reductions will remain in effect for 90 days. Bessent also hinted at the potential for a China purchasing agreement, emphasizing the desire of both countries to de-escalate trade tensions.
Market Reactions
- The news triggered a surge in risk-on sentiment, with US futures outperforming other indices and European equities gaining around 1.50%. US futures saw gains ranging from 3% to 4%. The correlation between the rise of the US Dollar and the benchmark 10-year US Treasury yield, which hit 4.45%, also came into play. The widening rate differential between the US and countries with lower yields bolstered the USD’s appeal.
- Moreover, the rebound in Treasury yields has led to reduced expectations for Federal Reserve rate cuts in 2025. The CME FedWatch tool shows just a 7.9% probability of a rate cut in June, while the odds of rates remaining unchanged at the July 30 meeting stand at 44.1%.
- Later in the day, at 14:25 GMT, Federal Reserve Bank Governor Adriana Kugler is set to discuss the economic outlook at the National Association for Business Economics and the Central Bank of Ireland's International Economic Symposium in Dublin.
- Additionally, the Loan Officer Survey (SLOOS) for the first quarter will be released at 18:00 GMT, offering insights into the lending environment for US households and small businesses.
Technical Analysis: US Dollar Index (DXY)
The DXY has witnessed strong bullish momentum, nearing the critical resistance level of 101.90, which served as a pivotal point throughout December 2023 and formed a base for the inverted head-and-shoulders pattern seen during the summer of 2024. A continued push higher could see the index test the 55-day Simple Moving Average (SMA) at 102.37.
However, if bearish sentiment takes hold, the previous resistance level at 100.22 is expected to act as support. A more pronounced decline could test the 97.73 support, followed by weaker levels at 96.94 and potentially reaching the 2022 lows at 95.25 and 94.56.
The US Dollar remains on solid footing as optimism over the tariff reduction agreement supports risk sentiment. Investors are closely watching upcoming speeches and economic data for further cues on the USD’s trajectory, while the interplay between Treasury yields and rate cut expectations remains pivotal.
US Dollar Index: Daily Chart
